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DRAFT FOR REVIEW

Forestry Sector Employment in Indonesia’s Riau Province

Krystof Obidzinski and Christopher Barr

July 2005
DRAFT for Review July 2005

EXECUTIVE SUMMARY

This study analyses forestry sector employment in Indonesia’s Riau province in 2001.
Based on official statistics and survey data, it estimates that some 86,500 workers were
employed in Riau’s forestry sector in that year. Of these, approximately 38,000 workers
were engaged in commercial timber extraction or pulpwood production, while just over
48,500 were involved in wood processing activities at plywood, sawnwood, or pulp and
paper mills.

Table A-1 summarizes the study’s findings related to direct employment in commercial
timber extraction or pulpwood production. HTI pulpwood plantations accounted for
approximately 48 percent of the overall employment in log production, with over 17,700
workers involved in planting 55,000 ha of Acacia plantations and harvesting 3.9 million
m3 at existing plantation sites. Approximately 14,400 workers – or 38 percent of the total -
- were involved in harvesting 13.9 million m3 of roundwood from undocumented sources,
accounting for roughly two-thirds of the logs produced in the province. Reported IPK land
clearing activities employed just under 3,800 workers (or 10 percent of the total), while
HPH logging concessions employed over 2,000 workers (or 5 percent of the total).

Table A-1: Direct Employment from Commercial Timber and Pulpwood Production in
Riau Province, 2001

Subsector Log Production Area Planted Direct Percent of


(m3) (ha) Employment Total (%)
HPH Logging Concessions 113,065 0 2,032 5.3
IPK Land Clearing 3,656,686 0 3,782 9.9
Undocumented Log Production 13,944,089 0 14,396 37.9
HTI Pulpwood Plantations 3,935,000 55,000 17,784 47.9
Total 21,648,840 55,000 37,944 100.0

Table A-2 summarizes the study’s findings related to direct employment in wood
processing. Over 26,500 workers were directly employed by the province’s 13 plywood
and wood working mills, accounting for nearly 55 percent of all jobs in wood processing
industries. Licensed sawmills and unlicensed sawmills generated 12,500 and 2,600 jobs,
respectively, to account for over 30 percent of the total employment in wood processing.
Riau’s two large pulp and paper mills – RAPP and Indah Kiat – together directly generated
6,480 jobs in 2001, representing 14 percent of the total.

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Table A-2: Direct Employment in Wood Processing Industries in Riau Province, 2001

Subsector Production Direct Percent of


Employment Total (%)
Plywood and Wood Working 1,052,316 m3 26,573 54.7
Licensed Sawnwood 1,187,364 m3 12,499 25.7
Unlicensed Sawnwood 867,240 m3 2,641 5.5
Pulp and Paper 3,150,000 Adt 6,840 14.1
Total -- 48,553 100.0

Key points to emerge from this analysis include the following:

1) Selective logging by HPH concession-holders was the largest source of timber


production through the mid-1990s, but the HPH subsector is now in a process of
rapid decline. Direct employment for Riau’s HPH subsector decreased from 8,455
employees in 1999 to 1,468 employees in 2001 – a drop of more than 80 percent
over the preceding three years alone.

2) Forest conversion has risen sharply in recent years, and land clearing is now the
dominant means of log production in Riau, accounting for up to 17.6 million m3 in
2001. This involved the clearing of approximately 135,000 ha and generated
employment for over 18,000 workers. Land clearing activities typically generated
employment for 134 workers per 1,000 ha – a far higher level of labor input per
unit of land than either HTI pulpwood plantations or HPH selective logging
concessions. However, employment generated by land clearing activities is short-
term in nature and inherently unsustainable. The degree of labor inputs involved in
land clearing varies quite considerably depending on whether an area is being
cleared in a manual, semi-mechanized, or mechanized manner. The conversion of
1,000 ha typically requires 440 workers if it is done manually; 96 workers if it is
done with semi-mechanized operations; and 39 workers if done through
mechanized operations.

3) Approximately 13.9 million m3 – or two-thirds of all logs harvested from Riau’s


natural forests during 2001 – came from undocumented sources. A significant
portion of this wood has been harvested by IPK land clearing permit-holders and
informal land-clearing operations whose production levels are not fully reflected in
statistics published by the Provincial Forestry Service. This implies that up to
14,400 workers, or nearly 40 percent of all those involved in log production in
Riau, are working in what may be characterized an informal sector.

4) The HTI pulpwood plantation subsector has grown substantially over the past
decade and is likely to continue to expand over the medium term to meet the fiber
needs of Riau’s pulp mills. Some 13,200 workers were involved in the
establishment of the 55,000 ha (net) of pulpwood plantations reported to have been
planted in 2001. In addition, approximately 4,600 workers were then involved in

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managing approximately 200,000 ha (net) that had been planted during 1996-2000.
These figures reflect the fact that labor inputs for pulpwood plantations are highly
cyclical. The numbers of workers employed peaks in Year 1, when land clearing,
site preparation, and planting occur; and again in Year 7, when harvesting and
replanting are carried out. During the intervening years, particularly Years 3-6,
employment drops sharply as relatively few workers are needed to manage the site.
Management of the 55,000 ha (net) planted in 2001, for instance, is expected to
have required approximately 3,200 workers in 2002 (Year 2) and fewer than 750
workers during 2003-2006 (Years 3-6).

5) Plywood production is undergoing a process of gradual decline, as the number of


mills operating in the province has dropped from 18 to 12 since 1998. Nonetheless,
in 2001 it remained the largest source of direct employment among Riau’s wood
processing subsectors. The large number of workers employed by plywood mills –
in some cases, as many as 3,100 at a single processing facility – suggest that the
closure of individual mills can have a fairly significant impact in terms of job loss.
Moreover, plywood production generates far more employment per unit of
roundwood consumed than other wood processing industries. In 2001, Riau’s
plywood and wood working mills employed, on average, 126 workers for every
10,000 m3 of roundwood they utilized. By contrast, licensed sawmills employed
approximately 53 workers for every 10,000 m3 of logs consumed, while the
province’s pulp and paper mills employed fewer than 5 workers for the same
volume of roundwood input.

6) Licensed and unlicensed sawnwood production has grown in recent years.


However, the industry’s production – and employment – levels are unlikely to be
sustainable over the long term, as the industry draws much of its raw material
supply from land clearing operations and illegal logging. In 2001, Riau had at least
600 sawmills, ranging in capacity from 500 m3 to 40,000 m3 per year. The
numbers of employees range from less than 10 to 450 per mill, although the vast
majority of mills employ fewer than 50 workers. The large number of licensed and
unlicensed sawmills in Riau has made the industry difficult to regulate. At the same
time, sawmills employ relatively small numbers of workers, so it is theoretically
possible for government agencies to target closure of individual mills that are found
to be operating illegally or in particular regions where overcapacity is a problem,
without displacing large numbers of employees at those facilities.

7) Riau’s pulp and paper industry has undergone rapid expansion since the mid-1990s,
as APP and APRIL have invested an estimated US$ 8.0 billion to build two of the
world’s largest pulp mills in the province. As of 2002, Indah Kiat and RAPP each
have pulp production capacities of 2.0 million tonnes per year; and together they
consume over three-quarters of the province’s total roundwood production. In
2001, the two mills consumed 15.4 million m3 of roundwood to produce 3.1
million tonnes of pulp, with roughly three-quarters of this being harvested from
natural forests while the remaining one-quarter came from the companies’ HTI
pulpwood plantations. However, the industry is highly capital-intensive and 6,840

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workers were employed in processing this large volume of logs. The study finds
that the pulp and paper industry generates direct employment of only 4.4 jobs in
wood processing for every 10,000 m3 of pulpwood consumed. If related land
clearing and plantation operations are included as well, it is estimated that Riau’s
pulp and paper industry provided direct employment for some 36,574 workers in
2001. Most of these are unskilled or semi-skilled workers classified as either ‘daily
labor’ or ‘target-based labor’, with wages ranging between Rp 435,000 and Rp 1.1
million per month (or US$ 550-1,450 per year).

8) These figures raise questions about the cost-effectiveness of further investments in


pulp and paper production as a means of creating jobs in the forestry sector. On
average, each job created in the pulp and paper industry and associated land
clearing and plantations subsectors has required an investment of approximately
US$ 218,000. At the same time, APP and APRIL have received considerable
government subsidies through favorable debt restructuring agreements with state-
owned banks and IBRA; lucrative tax incentives; and access to large volumes of
low-cost wood through the clearing of natural forests. This study estimates that
government subsidies of US$ 500 million could have provided jobs for 50,000
workers over 10 years had it been invested in public job creation initiatives.
Similarly, subsidies amounting to US$ 1.0 billion could have created jobs for
100,000 workers over 10 years.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS
Error! Bookmark not defined.

EXECUTIVE SUMMARY i

TABLE OF CONTENTS v

LIST OF FIGURES AND TABLES vi

GLOSSARY viii

Forestry Sector Employment in Indonesia’s Riau Province 1

with a Case Study of the Tesso Nilo Forest Complex Error! Bookmark not
defined.

SECTION 1: Overview of the Study 1


1.1 Description and Objectives 1
1.2 Methodology 1
1.3 Limitations on Data 3
1.4 Organization of the Study 4

SECTION 2: Forestry Sector Employment in Riau Province 4


2.1 Indonesia’s Forest Industry Restructuring Process 4
2.2 Overview of Riau’s Provincial Economy 6
2.3 Structure of Riau’s Forestry Sector 9
2.4 Estimate of 2001 Production Levels by Subsector 13
2.5 Employment From Timber and Pulpwood Production 17
2.5.1 HPH Selective Logging Concessions 17
2.5.2 Land Clearing by IPK Permit Holders 20
2.5.3 Undocumented Log Production 25
2.5.4 HTI Pulpwood Plantation Development 27
2.6 Employment from Wood Processing Industries 36
2.6.1 Plywood and Wood Working Mills 36
2.6.2 Licensed Sawmills 37
2.6.3 Unlicensed Sawmills 39
2.6.4 Pulp and Paper Production 40
2.7 Summary and Analysis 44
2.7.1 Direct Employment from Commercial Timber and Pulpwood Production 44
2.7.2 Direct Employment from Wood Processing 49

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BIBLIOGRAPHY 55

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LIST OF FIGURES AND TABLES

Figure 1: Map of Riau Province 8

Table 1: Riau’s Forest Estate According to Functional Category, 1998 9

Table 2: Log Production by Source for 2001, as Reported by Riau’s Provincial 13


Forestry Service

Table 3: Estimated Roundwood Input by Riau’s Wood Processing Industries, 2001 16

Table 4: Estimated Volumes of Logs Harvested in Riau by Type of Wood and 16


Source of Logs, 2001

Table 5: Reported Log Production by HPH Concessions in Riau, 1998-2002 17

Table 6: HPH Timber Concessions Active in Riau in 2001 17

Table 7: Cumulative Reported Log Production and Employment Figures for 19


Surveyed HPH Timber Concession-Holders, 1999-2001

Table 8: Wage Structure at Surveyed HPH Concessionaires in Riau 19

Table 9: Number and Area of IPK Land Clearing Permits in Riau, 2000-2002 20

Table 10: Official IPK Log Production Targets in Riau, 2000-2002 21

Table 11: Reported IPK Log Production in Riau 1999-2002 21

Table 12: Labor Inputs and Productivity Levels for Manual, Semi-Mechanized, 22
and Mechanized Land Clearing Operations

Table 13: Wage Structure at Surveyed IPK Land Clearing Sites in Riau 25

Table 14: Unlicensed Logging at Four Major Forest Areas in Riau, 2001 and 2002 26

Table 15: Standard Labor Inputs for HTI Pulpwood Plantation Development in 31
Riau

Table 16: Labor Inputs for HTI Plantation Development of 55,000 ha (net) Over a 33
7-Year Harvest Rotation

Table 17: Wage Structure at Surveyed HTI Pulpwood Plantations 30

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Table 18: List of Plywood Mills in Riau by Location and Production Capacity, 35
2000

Table 19: Production and Employment Levels for Surveyed Plywood and Wood 36
Working Mills, 2000 and 2001

Table 20: Production and Log Consumption by Licensed Sawmills in Riau, 2000- 37
2001

Table 21: Wage Structure for Licensed Sawmills in Riau, 2002 38

Table 22: Unlicensed Sawmill Production and Employment in Riau, 2001-2002 38

Table 23: Direct Employment at APRIL’s Riau Andalan Pulp & Paper Mill 40
Complex

Table 24 Basic Salary Structure for Operational Level Employees at PT Riau 41


Andalan Pulp & Paper

Table 25: Estimated Direct Employment at APP’s Indah Kiat Pulp & Paper Mill 42
Complex

Table 26: Direct Employment from Commercial Timber and Pulpwood Production 43
in Riau Province, 2001

Table 27: Direct Employment Per Area of Land Utilized by Forestry Subsector in 45
Riau, 2001

Table 28: Direct Employment in Wood Processing Industries in Riau Province, 48


2001

Table 29: Direct Employment Per Unit of Roundwood Consumed by Wood 49


Processing Subsector in Riau, 2001

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GLOSSARY

Arahan Pengembangan Lain/Arahan Area for Other/Non-Forestry Uses


Budidaya Non-Kehutanan (APL)

APP Asia Pulp & Paper

APRIL Asia Pacific Resources International Ltd

CCA Core Conservation Area

CGI Consultative Group on Indonesia

Dinas Kehutanan Provincial Forestry Service

Hak Pengusahaan Hutan (HPH) Selective logging timber concession

Hutan Produksi Production Forest

Hutan Tanaman Industri (HTI) Industrial timber plantation

IBRA Indonesian Bank Restructuring Agency

IKPP Indah Kiat Pulp & Paper

Izin Pemanfaatan Kayu (IPK) Land clearing permit

Kabupaten District (sub-provincial governing unit)

Kanwil (Kantor Wilayah) Ministry of Forestry’s Regional Forestry Office

Kawasan Hutan Forest Estate

Kawasan Lindung Protected Area

Kawasan Pengembangan Kehutanan Area for Forestry Development

MTH Mixed tropical hardwoods

Panglong Manual logging system used in Riau

RAPP Riau Andalan Pulp & Paper

Tebang Pilih dan Tanam Indonesia Indonesian Selective Logging and Planting
(TPTI) System

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Forestry Sector Employment in Indonesia’s Riau Province

SECTION 1: Overview of the Study

1.1 Description and Objectives

This study analyses employment dynamics in the forestry sector of Indonesia’s Riau
Province, located in central Sumatra, during 2001. It documents the numbers of workers
involved in various segments of the provincial forestry sector, including timber production
from selective logging timber concessions; land clearing operations; pulpwood plantation
development; and wood processing activities associated with the sawnwood, plywood, and
pulp and paper industries. It also provides preliminary estimates of the numbers of workers
involved in undocumented timber extraction in the province. The second portion of this
study focuses specifically on forestry sector employment related to the Tesso Nilo Forest
Complex, a proposed conservation area spanning 190,000 hectares (ha) in the south-central
part of the province.

A central objective of the study is to inform ongoing policy initiatives focused on


downsizing and restructuring Indonesia’s wood processing industries. This process, which
is largely occurring at the national level following Indonesian government commitments to
the IMF and other international donor agencies, has potentially far-reaching implications
for forestry sector employment in Riau and other forested regions of Indonesia. To date,
however, policymakers have had little detailed information on the numbers of people
directly employed in forestry activities, much less the numbers of indirect jobs created by
the sector. This has made it difficult for them to estimate the numbers of workers that
would be displaced by any significant efforts to close mills, or the tradeoffs in terms of
long-term job creation of promoting expansion in some segments of the forestry sector
while downsizing others.

1.2 Methodology

This analysis of employment in Riau’s forestry sector principally focuses on measuring the
numbers of workers directly employed by various segments of roundwood production and
wood processing industries during 2001.1 The methodology used involved two main steps.
First, production and employment data were collected from a sample of companies within
each segment of the province’s forestry sector: HPH selective logging concessions; IPK
land clearing operations; undocumented log production; HTI pulpwood plantations;

1
The study has focused on measuring forestry sector employment during 2001 because that was the latest
year for which reasonably reliable information on production associated with the various subsectors could be
obtained. When data collection for the study was conducted (December 2002 – February 2003), official
statistics for 2002 had not yet been published, and many companies surveyed indicated that they had not yet
formulated year-end production and employment statistics for 2002. An effort has been made to highlight
within the narrative any important changes that are known to have occurred between 2001 and 2002.
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plywood and wood working mills; licensed sawmills; unlicensed sawmills; and pulp and
paper mills. The principal objective of this exercise was to determine the relationship
between production levels and the numbers of workers directly employed by individual
producers within each segment. Data on origin of each company’s employees (i.e. ‘local’
vs.‘non-local’ origin) and on wage structures were also collected.2

Second, the production-employment ratio obtained from the sample in each subsector was
then used to extrapolate total employment for all producers in the province. This
extrapolation involved the multiplication of average productivity levels per worker from
the sample companies by the total reported (or assumed) production levels from a
particular segment of the provincial forestry sector. Overall production levels were
generally obtained from official statistics; however, in some subsectors, it was necessary to
work with figures reported by leading producers and/or informed estimates due to
limitations on the availability and reliability of official data. In particular, this type of
triangulation process was used to estimate overall log production levels in Riau, as the
volume of roundwood production reported in the official statistics was known to grossly
underestimate the actual volume of logs that were harvested during 2001.

To obtain a reliable estimate of actual roundwood production, the reported and assumed
volumes of logs consumed by the province’s wood processing industries were totaled, and
this total was then dis-aggregated by log type (i.e. Acacia pulpwood; MTH pulpwood; and
commercial logs harvested from natural forests). This resulted in the estimation that
official statistics under-reported log production from Riau’s natural forests by 13.9 million
m3. As the origins of this wood are unclear, this volume was classified as ‘undocumented
timber production.’ In addition, the official statistics underestimate the volume of logs
harvested from Acacia plantations by some 3.5 million m3, according to figures provided
by the province’s two large pulp producers, APP and APRIL. Although unreported, this
volume was included under ‘HTI pulpwood production’, as the origins of this wood
seemed sufficiently clear.

Field surveys for this study was carried out between December 2002 and February 2003.
Due to the emphasis this study placed on Tesso Nilo, sample companies were largely
selected from this area. In order to balance the picture, other forestry and wood processing
companies were sampled from the north of Riau (Rokan Hilir District) as well as south
(around Bukit Tigapuluh National Park) and southeast (Kerumutan). Estimates of
production levels and numbers of employees involved in illegal logging and unlicensed
sawmill operations throughout the province, and in IPK land clearing activities and
licensed/unlicensed sawmills in the Tesso Nilo area were obtained from field surveys
conducted independently by WWF staff based in Riau.

2
In this study, ‘locals’ were defined to be persons originating from and/or living permanently in Riau, while
‘non-locals’ were defined to be people whose origins or permanent residence is outside of the province of
Riau. Most often, ‘non-locals’ came from the neighboring provinces of West Sumatra, North Sumatra, and
South Sumatra.

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1.3 Limitations on Data

In many places, the analysis presented in this study has needed to be qualified due the
limited availability and highly variable quality of the data on forestry sector production and
employment in Riau. Limitations on the availability and reliability of official forestry
statistics can be attributed to a number of factors. First, no government agency at the
national, provincial, or district level possesses a systematic data base on forestry sector
employment. While the Ministry of Forestry’s Regional Office (Kantor Wilayah, or
Kanwil) published employment figures for wood processing facilities until 2000, these
appear to have been based on numbers reported by the companies involved with little
cross-checking on the part of Kanwil.

A similar problem exists with the official statistics on output levels for various types of
roundwood production and wood processing. Figures published by Kanwil and by the
Provincial Forestry Service (Dinas Kehutanan) often diverge quite sharply from one
another, and in many cases, there appears to be a systematic under-reporting of actual
production volumes. Indeed, large volumes of timber are believed to be harvested and
processed illegally in Riau, and these volumes are routinely excluded from the official
statistics.

A third factor limiting the quality of the official data is Indonesia’s ongoing regional
autonomy process, which began in 2000. In Riau, as in other parts of Indonesia,
decentralization of forest administration has resulted in the closure of the Kanwil (which
reported to the Ministry of Forestry in Jakarta) and the transfer of authority to the Dinas
Kehutanan at the provincial and district levels (which report to the Governor and Bupati,
respectively). In many cases, the provincial and district forestry agencies are working with
very limited fiscal and human resources, and this has led to significant gaps in the
collection and publication of official statistics. In addition, the conflicting economic and
political interests between the various levels of government has often resulted in poor
communication and limited transfer of information between districts and province forestry
departments.

One important area where the limited availability of reliable data has constrained this
analysis is in estimated the degree of indirect employment generated by roundwood
production and wood processing industries in Riau. Producing a reliable estimate of
indirect employment for the various subsectors would require a detailed understanding of
producers’ external revenue earnings and expenditures within the province, as well as the
levels of disposable income, household consumption, and spending practices of employees
who are directly employed by these industries. As it was not possible to obtain detailed
information of this sort during the period when data collection for this study was
conducted, estimations of indirect employment are not included in this study. It is
acknowledged, however, that indirect employment is an important issue that merits serious
analysis.

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1.4 Organization of the Study

Section II of this paper focuses on forestry sector employment throughout Riau Province.
It presents a description of Indonesia’s industrial restructuring process to locate the study
within the national policy context. This is followed by an overview of Riau’s provincial
economy and the structure of Riau’s forestry sector, as well as a section discussing the
estimation of roundwood production volumes for 2001 The narrative then examines direct
employment associated with various types of timber and pulpwood production in Riau, and
with the different segments of Riau’s wood processing sector.

SECTION 2: Forestry Sector Employment in Riau Province

2.1 Indonesia’s Forest Industry Restructuring Process

To clarify the policy context of the present study, this section describes the Government of
Indonesia’s ongoing initiative to downsize and restructure the country’s forest-based
industries. This process effectively began in February 2000, when the government met
with the IMF, World Bank and bilateral donor countries involved in the Consultative
Group on Indonesia (CGI) (World Bank 2001). At this meeting, the Government made
eight forest-related commitments to the international donor community.

Collectively, these commitments were aimed at reducing pressures on Indonesia’s forests,


improving forestry sector governance, and promoting the long-term viability of the
country’s forest sector industries (Keating 2000). In support of these objectives, several of
the CGI forestry commitments were designed to bring about a reduction in Indonesia’s
domestic wood processing capacity. Specifically, the Government agreed to:
1) Downsize and restructure Indonesia’s wood processing industries;
2) Close illegal sawmills and take measures to curtail illegal logging;
3) Close heavily indebted forestry companies then under the Indonesian Bank
Restructuring Agency (IBRA).

At the national level, the rationale for reducing Indonesia’s domestic wood processing
capacity is compelling for several reasons. First, Indonesia has for several years faced a
considerable imbalance between demand for roundwood from the country’s sawnwood,
plywood, and pulp industries, on the one hand, and the volumes of logs that can be
sustainably harvested from the country’s forests, on the other hand (Barr 2001). It is
estimated, for instance, that in 2000 domestic wood processing facilities collectively
consumed at least 60 million cubic meters (m3) of wood; however, the Ministry of
Forestry then projected that the nation’s forest estate could sustainably supply only 22
million m3 of roundwood on an annual basis. Since then, the Ministry has sharply reduced
its estimation of the sustainable harvest level, restricting the authorized harvest from the
country’s entire forest estate to 6.8 million m3 in 2003.

Second, a very significant percentage of the timber produced in Indonesia is harvested


illegally (World Bank 2001). Some analysts estimate that perhaps as much as 70 percent of

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the 50-70 million m3 of roundwood cut each year originates from illegal sources, resulting
in lost government revenues of several hundred million dollars or more. With few effective
mechanisms for law enforcement in the country’s forestry sector, overcapacity on the part
of domestic wood processing industries is a major structural factor driving illegal logging.
In some regions, large numbers of wood processing facilities – particularly small-scale
sawmills – also operate without the required licenses and permits.

Third, when the Government made its commitments to the CGI in February 2000,
Indonesian forestry conglomerates accounted for over US$ 3 billion in corporate debts
held by the Indonesian Bank Restructuring Agency (Barr and Setiono, 2001). At that time,
there were signs – which have since proven to be largely correct – that IBRA would
effectively write off 70 percent or more of the forestry debts in its portfolio. In seeking to
close Indonesia’s heavily indebted forestry companies, members of the CGI sought to
prevent the recapitalization (and subsidization through debt write-off) of companies that
were not commercially viable for the long-term. They also sought to take advantage of
IBRA’s far-reaching legal powers over indebted companies as an efficient institutional
mechanism for downsizing the industry.

Within this context, the international donor community has worked closely with the
Ministry of Forestry to develop plans for restructuring Indonesia’s forestry sector
industries (DFF 2001; DFF 2002). During 2002, members of the Donor Forum on Forests
provided technical assistance to the Ministry’s Working Group on Forest Industry
Restructuring to design a mill inspection process that would determine whether particular
wood processors are using logs that have been harvested illegally. In early 2003, the
Ministry initiated trial inspections at several plywood mills, and announced that mills
found to be using illegal logs either would be closed outright or their processing capacity
would be reduced.

The Ministry’s efforts to downsize Indonesia’s wood processing sector have met with stiff
resistance from forest industry groups, labor unions, and district and provincial officials in
regions where potentially affected industries are located.3 A common criticism is that the
closure of wood processing facilities will displace large numbers of workers. To date,
however, policymakers have had little information on the impacts that downsizing and
restructuring the country’s wood processing industries would likely have on livelihoods in
forested regions. In particular, little data exists in the public domain related to the numbers
of people directly and indirectly employed by various segments of the forestry sector.

In seeking to downsize the nation’s wood processing industries, the Ministry of Forestry
has also encountered dissonance with other policymakers at the national level. In early
2002, for instance, the Ministry of Industry and Trade announced plans to prioritize further
development of Indonesia’s pulp and paper sector, designating it as one of five ‘sectoral
drivers of macroeconomic recovery’ (DFF 2002). To date, however, it appears that the
Ministry has not carefully analyzed what new pulp and paper capacity expansions would
mean either in terms of pressures on forests or of job creation. These issues are particularly

3
David Brown, personal communication, March 17, 2003.

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relevant for Riau, where approximately 70 percent of the nation’s pulp production capacity
is located.

2.2 Overview of Riau’s Provincial Economy

Located in central Sumatra, the province of Riau covers an area of 94,561 square
kilometers (km2), representing roughly 5 percent of Indonesia’s total land area – or an area
over twice the size of Denmark (see Figure 1). The province is situated just across the
Straits of Malacca from Singapore, giving it a strategic position for shipping and trade. A
significant portion of Riau’s total area is comprised of inland sea waters, coastal swamps,
and islands. Much of the province’s dryland areas and swamplands were, until quite
recently, covered by extensive tracts of tropical forests.

Historically, Riau has long been one of Indonesia’s wealthiest provinces. This is primarily
due to its rich deposits of oil and natural gas, which have been the cornerstone of Riau’s
economy since the Dutch colonial period. In 1997, Riau accounted for 58 percent of
Indonesia’s national oil production, when the province generated nearly 1.0 million barrels
of crude oil per day (BPS, 2000; Riau Dalam Angka 1998 cited in Potter and Badcock
2001). Riau currently produces approximately 750,000 barrels of oil per day, or over 270
million barrels annually. Much of this is produced by US-based multinational Caltex,
working with Indonesia’s national petroleum company Pertamina. The petroleum and
mining sector contributed some Rp 30 trillion to the provincial economy in 2000, or 54
percent of Riau’s regional Gross Domestic Product of Rp 55 trillion.

Over the last 35 years, forestry has also played a significant role in Riau’s provincial
economy. Large-scale timber extraction began in the early-1970s with the establishment of
Indonesia’s commercial logging concession system. Following the introduction of the
country’s national ban on log exports in the mid-1980s, sizeable plywood and sawnwood
industries were also developed in the province, although Riau’s wood panel industry has
been in decline over the last several years. The forestry sector currently accounts for
approximately 9 percent of the Riau’s regional GDP, having generated Rp 56.3 billion in
revenues for the provincial economy in 2000 (Dinas Pendapatan Daerah Riau 2000, cited
in Andrianto 2003).

Since the early-1990s, Riau has been at the epicenter of Indonesia’s pulp and paper boom
(Barr 2000). The Asia Pulp & Paper (APP) and Asia Pacific Resources International Ltd
(APRIL) groups have built the world’s largest stand-alone pulp mills approximately 100
km from one another – PT Indah Kiat Pulp & Paper (IKPP) in Perawang and PT Riau
Andalan Pulp & Paper (RAPP) in Pangkalan Kerinci, respectively. Each of these mills is
capable of producing 2.0 million tonnes of bleached hardwood kraft pulp per year, and
together they account for nearly 70 percent of Indonesia’s installed pulp production
capacity. The development of these mills, along with their integrated paper and paperboard
facilities, has involved a capital investment of approximately US$ 8 billion during the past
decade and a half. Although both APP and APRIL have faced serious financial problems in

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DRAFT for Review July 2005

recent years, the Indah Kiat and RAPP mills in Riau generated aggregate revenues of some
US$ 1.3 billion during 2001.

In recent years, the provincial government has also prioritized the development of Riau’s
oil palm industry. In 2001, it was estimated that Riau had up to 1 million hectares of land
allocated for oil palm plantations, making it Indonesia’s leading province in this sector
(Potter and Badcock, 2001). Although investment in new oil palm development largely
came to a halt following Indonesia’s 1997 financial crisis, many financial analysts expect
that Riau’s oil palm industry will experience renewed growth as Indonesia’s economic
recovery progresses. In the late-1990s, the provincial government also reported that Riau
had approximately 500,000 ha of rubber plantations and nearly 600,000 ha of coconut
plantations (Dinas Perkebunan 1999, cited in Potter and Badcock 2001). In both cases,
most of these areas were controlled by smallholders.

Riau’s population was 4.1 million in 1997. Government statistics indicate that
approximately 55 percent of the population is active in the province’s labor force. In 2000,
the official estimate of active labor was 2.2 million people. Riau’s strong natural resource
base and low labor costs enabled the province to maintain annual growth rates of
approximately 9 percent in the late-1990s, in spite of the economic crisis that affected most
of Indonesia. Indeed, Riau’s regional GDP nearly doubled between 1997 and 2000 – rising
from Rp 26.8 trillion to Rp 55.4 trillion – due mainly to the favorable position of its
export-oriented economy and the sharp depreciation of Indonesia’s currency.

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DRAFT for Review July 2005

Figure 1: Map of Riau Province

8
2.3 Structure of Riau’s Forestry Sector

According to the Ministry of Forestry’s Regional Office (Kantor Wilayah, or Kanwil),


Riau officially has just over 4.8 million ha that is classified as permanent ‘Forest Estate’
(Kawasan Hutan), representing approximately 51 percent of the province’s total land area
(Kanwil Riau 2000).4 This area is divided into 10 functional types which are broadly
organized into two major forest categories, as shown in Table 1. Over 3.2 million ha is
classified as ‘Area for Forestry Development’ (Kawasan Pengembangan Kehutanan), of
which approximately three-quarters is classified as ‘Production Forest’ (Hutan Produksi).
A second category, ‘Protection Area’ (Kawasan Lindung), encompasses approximately 1.6
million ha.

A third functional category is classified as ‘Areas for Other/Non-Forestry Uses’ (Arahan


Pengembangan Lain/Arahan Budidaya Non-Kehutanan, or APL) (Kanwil Riau 2000).
This category encompasses some 4.6 million ha of both forested and non-forested lands,
accounting for almost one-half of Riau’s entire land area. It is commonly understood that
forested areas within this classification have been designated for conversion to other forms
of land-use, and are not part of the province’s permanent ‘Forest Estate’. However, few
clear guidelines defining the criteria used for placing forested areas within this category
exist in the public domain. Nor is it clear how much of the land in this category is covered
by forests, or what the quality of these forests actually is.

Table 1: Riau’s Forest Estate According to Functional Category, 1998

Functional Category Area (ha)

Area for Forestry Development (Kawasan Pengembangan Kehutanan)


Production Forest (Hutan Produksi) 2,649,608
Production Forest for Conversion (Hutan Produksi Konversi) 334,521
Swamp Forest (Hutan Bakau) 252,860
Subtotal 3,236,989

Protection Area (Kawasan Lindung)


Protection Forest (Hutan Lindung) 361,867
Protected Peat Area (Kawasan Lindung Gambut) 695,874
**** (Cagar Alam/Suaka Marga Satwa) 439,230
National Parks (Taman Nasional) 110,114
Forest Parks (Taman Hutan Raya) 6,172
Recreation Forests (Hutan Wisata) 4,721
Areas Surrounding Reservoirs, Lakes and Rivers 13,100
(Kawasan di Sekitar Waduk, Danau, dan Sungai)
Subtotal 1,631,078

4
This figure represents the total area classified as ‘Forest Estate’ (Kawasan Hutan) according to the
reconciliation of the Ministry of Forestry’s ‘Consensus Forest Spatial Plan’ (Tata Guna Hutan Kesepakatan,
or TGHK) and the Riau provincial government’s ‘Provincial-Level Spatial Plan’ (Rencana Tata Ruang
Wilayah Propinsi, or RTRWP). The reconciled spatial plan was promulgated by the Riau Governor’s
Decision 105.a/III/1998, dated March 27, 1998.
DRAFT for Review July 2005

Area for Other/Non-Forestry Uses


(Arahan Pengembangan Lain/Arahan Budidaya Non-Kehutanan)
Subtotal 4,588,093

Total 9,456,160
Source: Kanwil Riau 2000.

Commercial timber production in Riau dates to at least the 1870s, when the forests of
central Sumatra supplied logs to Singapore and Malaysia and to other parts of the Dutch
East Indies (Djajapertjunda 2002). During the colonial era, logs were harvested manually
by teams of laborers financed by local timber merchants under a system known locally as
panglong. Colonial records indicate that during the period 1905-1924, the volume of
timber harvested under Riau’s panglong system averaged 270,750 m3 per year, most of
which was exported to Singapore. This method of timber extraction remained in place
through the first two decades after Indonesia’s independence in 1945 (Esmara 1975).
During much of the 1950s and early 1960s, Riau’s timber sector was oriented towards
supplying lumber and other construction materials needed for the development of the
Caltex oil fields outside Pekanbaru (Djajapertjunda 2002).

Large-scale mechanized logging began shortly after the Suharto regime came to power in
the late 1960s. Following the introduction of the Basic Forestry Law in 1967, the
Government assumed control over the nation’s forests and made vast tracts available to
private sector logging companies in the form of HPH (Hak Pengusahaan Hutan) timber
concessions (Barr 2001). In Riau, as in many other parts of Indonesia, HPH concessions
were often allocated as a form of political patronage to companies linked to local military
units and political elites. During the Suharto era (1966-1998), the Ministry of Forestry
allocated 63 HPH timber concessions in Riau, covering an aggregate area of 5.1 million ha
– or roughly 55 percent of the province’s total land area (Departemen Kehutanan 1998).

Under the terms of the HPH contract, concession-holders were initially permitted to
harvest timber in areas designated as ‘Production Forest’ and ‘Limited Production Forest’
for a period of 20 years. In 1998, however, at the urging of the World Bank and the IMF,
the Indonesian government extended the duration of the HPH contract to 35 years.
Concession management practices are prescribed by the ‘Indonesian Selective Cutting and
Replanting’ (Tebang Pilih dan Tanam Indonesia, TPTI) system. Guidelines for the TPTI
system include the use of a 35-year harvesting cycle; restrictions on cutting commercial
species that are below 50 cm diameter at breast height (dbh); rehabilitation of skid trails
and enrichment planting; and thinning of non-commercial species at 10, 15, and 20 years.

Through the 1970s, Riau ranked among Indonesia’s major timber producing provinces; in
most years, it was surpassed in volumes of logs produced by only East Kalimantan and
West Kalimantan. Most of the logs harvested from HPH concessions at that time were
shipped to Japan and other export markets, where they were processed into lumber and
wood panels. In the early 1980s, when the Indonesian government phased in the national
ban on log exports, many HPH concession-holders invested in wood processing facilities
(Barr 1998). In Riau, these included 16 plywood mills with an aggregate processing

10
DRAFT for Review July 2005

capacity of 1.1 million m3 of panels per year (Kanwil Riau 2000). Most of these
processing facilities are integrated with affiliated HPH concession sites from which they
obtain a majority of their raw material needs; however, several mills also purchase logs
from third party suppliers.

Through the mid-1990s, Riau’s plywood mills produced between 750,000 m3 and 820,000
m3 of panels per year, according to provincial government statistics (Kanwil Riau 1999).
Much of this volume was exported to Japan and other markets through Indonesia’s
APKINDO plywood cartel, which was controlled by Suharto associate Mohamed ‘Bob’
Hasan until it was dismantled in January 1998 (Barr 1998). In recent years, plywood
production in the province has declined markedly, as large-diameter logs have become
increasingly scarce and as many producers have faced financial pressures associated with
Indonesia’s continuing economic crisis. Provincial government statistics indicate that
Riau’s plywood production in 2001 was 1.0 million m3. In addition, at least three
plywood mills have closed since 2000, and several others are reported to be operating at
levels that are well below full capacity.

Riau’s wood processing sector also includes some 350 licensed sawmills, which are
distributed widely throughout the province. These range in capacity from 500 m3 to 40,000
m3 per year (Kanwil Riau 2000). Collectively, they have an aggregate production capacity
of just under 1.2 million m3 of sawnwood per year. Several of these mills are also
integrated with moulding and wood-working facilities. If it is assumed that these mills are
generally operating at efficiency levels of 50 percent, the industry’s overall capacity for log
consumption stands at approximately 2.4 million m3 per year. It is likely, however, that
many mills are running well below full capacity. The province also has at least 250
unlicensed sawmills which produce an estimated 867,000 m3 of lumber annually (WWF
2002a). These mills are capable of consuming at least 1.7 million m3 of roundwood per
year assuming a 50 percent efficiency level. It is widely believed that a substantial portion
of the logs utilized by Riau’s licensed and unlicensed sawmills originates from illegal
sources.

Since the early-1990s, the largest and fastest-growing segment of Riau’s wood processing
sector has been the pulp industry. PT Indah Kiat Pulp & Paper (IKPP), which is owned by
Indonesia’s Sinar Mas Group through its Singapore-based holding company Asia Pulp &
Paper (APP), started producing pulp in 1984 (Spek 2000). PT Riau Andalan Pulp & Paper
(RAPP), owned by the Raja Garuda Mas Group via its Singapore-based APRIL holding
company, began production in 1995. Indonesia’s two leading pulp producers have
undergone rapid expansion over the last several years, and each mill now has a pulp
processing capacity of 2.0 million tonnes per year (Barr 2001). This corresponds to a
combined annual wood demand of just under 20 million m3 of wood (9.8 million m3 per
year for each mill), if the mills were to operate at full capacity.

Over the past decade, APP and APRIL have allocated substantial resources to developing
large-scale plantations with the stated aim of establishing a sustainable fiber supply for
their mills. Both companies have secured sizeable tracts of conversion forest under the
Indonesian government’s industrial plantation program (Hutan Tanaman Industri, or HTI),

11
DRAFT for Review July 2005

which they are permitted to manage under a 42-year license (MOFEC 1999). Arara Abadi,
a plantation company controlled by the Sinar Mas Group, holds a plantation concession
license for 300,000 hectares (gross) disbursed among several blocks that are located 60 to
120 km from Indah Kiat’s Perawang mill site (Sinar Mas/APP 2002). APRIL’s parent
conglomerate, the Raja Garuda Mas Group, holds a plantation concession with a gross area
of 280,500 ha to supply fiber to the Riau Andalan mill (RAPP 2001). At their HTI sites,
both companies are planting the fast-growing species Acacia mangium and Acacia
crassicarpa, each of which is managed on a 7-year harvest rotation.

In spite of the substantial investments that APP and APRIL have made to bring plantations
online, both groups’ mills continue to rely very heavily on mixed tropical hardwoods
(MTH) harvested from Riau’s natural forests. In 2001, approximately 80 percent of the 6.5
– 9.0 million m3 of fiber consumed by Riau Andalan and Indah Kiat, respectively, was
from MTH, with 20 percent coming from plantation Acacia. Historically, two-thirds to
three-quarters of the MTH consumed by Indah Kiat and Riau Andalan has reportedly been
harvested from affiliated plantation concessions, where the natural forest has been cleared
to open up new areas for planting Acacia. Much of the remaining MTH has been
purchased from companies holding IPK (Izin Pemanfaatan Kayu) wood utilization permits,
which are often used to clear natural forest for the establishment of oil palm or other agro-
industrial estates.

Since the Indah Kiat and Riau Andalan mills began operating, both producers have
projected that they would soon be able to feed their mills with a sustainable supply of
plantation-grown pulpwood. However, each group has expanded pulp processing capacity
at its mill at a much faster rate than it has brought HTI plantations online. At present, Indah
Kiat is projecting that it will rely solely on plantation-grown fiber and no longer use MTH
by 2007 (AMEC 2001). RAPP, likewise, is projecting that it will fully source its fiber from
plantation pulpwood by 2009 (RAPP 2001). To meet these ‘sustainability’ targets, both
groups are seeking to convert large new areas of natural forest to plantations. Indeed,
figures released by each producer indicate that its existing HTI plantation concessions are
adequate to produce little more than 50 percent of the wood that its pulp mill needs on an
ongoing basis (Barr 2002). In Indah Kiat’s case, the group plans to secure approximately
5.0 million m3 of Acacia wood per year from Arara Abadi when the HTI is fully planted
(AMEC 2001). Similarly, RAPP projects that it will be able to obtain approximately 5.3
million m3 of plantation wood annually from its HTI sites (RAPP 2001).

Both producers plan to secure the remaining fiber their mills need by converting new areas
of forest to plantations through joint venture (JV) agreements with other HTI license-
holders or local cooperatives, and through outgrower schemes involving local
communities. The Sinar Mas Group aims to convert 167,000 ha to plantations in Riau
through joint ventures with unspecified local cooperatives to supply wood to the Indah
Kiat mill (AMEC 2001). For its part, the Raja Garuda Mas Group plans to develop
187,000 ha to plantations through joint ventures with other HTI license-holders, and 7,000
ha through out-grower schemes to supply fiber to RAPP (RAPP 2001). Both producers’
plans for achieving a sustainable wood supply are quite ambitious, and recent studies have

12
DRAFT for Review July 2005

suggested that there are a number of risk factors that could inhibit them from achieving the
targets they have set (Barr 2002; AMEC 2001).

2.4 Estimate of 2001 Production Levels by Subsector

As explained in the ‘Methodology’ section above, this study focuses on estimating the
numbers of workers directly employed by the various segments of Riau’s forestry sector
during 2001. At the time data collection was conducted (December 2002 – February 2003),
official production statistics for 2002 were not yet available from the Provincial Forestry
Service (Dinas Kehutanan), and many of the companies surveyed were prepared to offer
only preliminary estimates of 2002 output and employment levels.

This section reviews the available data on 2001 log production levels and output from each
of the province’s major wood processing industries. The purpose is to summarize the
disaggregated production figures for each subsector, as these figures will serve as the basis
for the study’s analysis of direct employment within each industry segment. This review of
the 2001 production statistics also highlights some significant areas where the official data
reported by the Provincial Forestry Service diverge from apparent production levels. Most
notably, there is a wide gap between log production levels reported by Dinas Kehutanan
and the volumes of logs that are estimated to have been consumed by the different
segments of Riau’s wood processing sector.

Official statistics published by the Provincial Forestry Service report that total log
production in Riau during 2001 was just over 4.2 million m3 (see Table 2). These logs
came from three principal sources: 1) HPH selective logging concessions; 2) land
conversion activities by IPK permit-holders; and 3) the harvest of Acacia logs at HTI
pulpwood plantations. As Table 2 shows, IPK land clearing operations accounted for over
85 percent of Riau’s overall log output, according to production levels reported by Dinas
Kehutanan.

Table 2: Log Production by Source for 2001, as Reported by Riau’s Provincial Forestry
Service

Log Source Volume Percent of Total


(m3) (%)
HPH Logging Concessions 113,065 3
IPK Land Clearing 3,656,686 86
-- Commercial logs (666,272) (16)
-- MTH Pulpwood (2,990,414) (70)
HTI Pulpwood Plantations 460,107 11
Total 4,229,858 100
Source: Dinas Kehutanan 2002.

It is believed that the volume of log production reported by Dinas Kehutanan grossly
underestimates real production levels that occurred in Riau during 2001. An estimate of

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DRAFT for Review July 2005

actual production levels can be derived from the assumed volumes of log inputs for the
province’s wood processing industries. As Table 3 shows, the province’s plywood and
licensed sawnwood industries each consumed over 2.1 million m3 of roundwood to
produce over 1.0 million m3 of processed output (as reported by Dinas Kehutanan
statistics), assuming a 50 percent rate of processing efficiency. Likewise, unlicensed
sawmills are believed to have consumed over 1.7 million m3 of logs to produce the
867,000 m3 of lumber documented by WWF-Riau (2002a). Riau’s two large pulp mills
consumed approximately 15.4 million m3 of pulpwood to produce 3.1 million air-dried
tonnes of pulp, according to figures provided by APP and APRIL (Barr 2002). Altogether,
this implies that total log production in Riau during 2001 exceeded 21.6 million m3 – or
over five times the volume of log production reported by the Provincial Forestry Service.

Table 4 summarizes both reported and undocumented log production by the type of logs
(i.e commercial roundwood, MTH pulpwood, and plantation-grown Acacia logs) and by
the source of these logs, to the extent the latter is known. Disaggregation of the estimated
roundwood production figures in this way suggests that of the 17.4 million m3 that do not
appear in the official statistics for 2001, commercial logs for processing into sawnwood or
plywood (or export as roundwood) accounted for 5.4 million m3; MTH pulpwood
harvested from natural forests accounted for 8.5 million m3; and Acacia logs harvested
from HTI plantation sites accounted for the remaining 3.5 million m3.

APP and APRIL have reported that their pulp mills obtained this 3.5 million m3 of Acacia
logs from affiliated plantation companies. This suggests that some 13.7 million m3 of
commercial logs and MTH pulpwood was harvested from sources that cannot be readily
identified from existing statistics. For the purposes of this study, this volume of wood will
be treated as having originated from ‘undocumented sources’. Of this, it can be estimated
that at least 12.1 million m3 – or approximately 88 percent of the overall volume harvested
from ‘undocumented sources’ – was extracted through land-clearing activities similar to
those conducted by IPK permit-holders.5

Illegal logging is widespread in Riau, as in many other parts of Indonesia; and it is


therefore possible that some volume of logs obtained from ‘undocumented sources’ were
harvested illegally. However, as will be discussed in greater detail below, it is also the case
that the total volume of timber that could officially be harvested under the IPK permits
issued in Riau for 2001 exceeded 20.0 million m3. This suggests that some portion of the
logs obtained from ‘undocumented sources’ – perhaps a significant portion -- may, in fact,
have been harvested legally under legitimate IPK land clearing permits and simply not
recorded by Dinas Kehutanan statistics. At the same time, it is widely recognized that
many IPK permit-holders in Riau also routinely under-report the volumes they harvest in
order to avoid paying royalties on the logs extracted. Moreover, it may be the case that

5
This figure is derived from the assumption that the entire 8.5 million m3 of MTH pulpwood was obtained
through land-clearing, and that small-diameter pulpwood on average accounts for 70 percent of the
harvestable timber at conversion sites and commercial logs account for the remaining 30 percent. This
suggests that the harvest of 8.5 million m3 of small-diameter pulpwood through land-clearing would have
also yielded approximately 3.6 million m3 of larger-diameter commercial logs, for a total harvest of 12.1
million m3.

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DRAFT for Review July 2005

‘legitimate’ IPK land clearing permits are also sometimes used to provide the appearance
of legality for wood harvested illegally outside of specified IPK sites.

Due to the scale of ‘undocumented’ timber extraction and the complexity of the legal
issues involved, it is not possible for this study to determine the volumes of timber
harvested illegally in Riau. As such, this study will seek to determine the numbers of
workers involved in producing the 13.7 million m3 of timber that were harvested from
‘undocumented sources’ without disaggregating this figure according to legal and illegal
logging activities.

15
Table 3: Estimated Roundwood Input by Riau’s Wood Processing Industries, 2001

Industry Reported 2001 Estimated Volume of Roundwood Input by Type


Output Roundwood Input Commercial Logs MTH Pulpwood HTI Acacia
(m3) (m3) (m3) (m3)
Plywood 1,052,316 m3 2,104,632 2,104,632 0 0
Licensed Sawnwood 1,187,364 m3 2,374,728 2,374,728 0 0
Unlicensed Sawnwood 867,240 m3 1,734,480 1,734,480 0 0
Pulp 3,150,000 Adt 15,435,000 0 11,500,000 3,935,000
Total -- 21,648,840 6,213,840 11,500,000 3,935,000
Source: Data for plywood and licensed sawnwood industry output are from Dinas Kehutanan (2002). The volume of unlicensed
sawnwood industry output is from WWF-Riau (2002). The volume of pulp production, and MTH pulpwood and HTI Acacia inputs, are
from RAPP and Indah Kiat reports cited in Barr (2002).
Note: Estimated roundwood input for plywood, licensed sawnwood, and unlicensed sawnwood production assumes a 50 percent rate of
efficiency for conversion of logs to finished product. Estimated roundwood input for pulp production assumes that 4.9 m3 of roundwood
are used to produce 1 air-dried tonne (Adt) of pulp.

Table 4: Estimated Volumes of Logs Harvested in Riau by Type of Wood and Source of Logs, 2001

Type of Wood Total Volume Volume of Logs by Source


(m3) Reported HPH Reported IPK Reported HTI Output Not Covered by
Output Output Output Official Statistics
(m3) (m3) (m3) (m3)
Commercial Logs 6,213,840 113,065 666,272 0 5,434,503
MTH Pulpwood 11,500,000 0 2,990,414 0 8,509,586
HTI Acacia 3,935,000 0 0 460,107 3,474,893
Total 21,648,840 113,065 3,656,686 460,107 17,418,982
Source: Data for reported log output for HPH, IPK, and HTI production are from Dinas Kehutanan (2002).

16
2.5 Employment From Timber and Pulpwood Production

This part of the study assesses the numbers of workers that are directly employed in
various types of timber harvesting and pulpwood production in Riau. The sections below
examine each of the following segments of the provincial forestry sector: HPH selective
logging concessions; land clearing by IPK permit-holders; unlicensed logging operations;
and the development of HTI pulpwood plantations.

2.5.1 HPH Selective Logging Concessions


Over the last three decades, HPH timber concessions in the province have conducted large-
scale mechanized logging operations in most of Riau’s 2.6 million ha of ‘Production
Forest’. Since the mid-1990s, HPH concessions in many parts of the province have been in
a steady decline. During the period 1998-2002, HPH log production dropped from 863,000
m3 to 156,000 m3 per year (see Table 5). In 2001, HPH log production was 113,065 m3.

Table 5: Reported Log Production by HPH Concessions in Riau, 1998-2002

Year Volume (m3)


1998 863,240
1999 649,770
2000 311,162
2001 113,065
2002 156,171
Source: Dinas Kehutanan (2000)

The number of active HPH concession sites in the province declined from 63 in 1998 to 20
in 2001. These 20 concessions encompassed a total area of just over 1.1 million ha – or
approximately 20 percent of the total 5.3 million ha that had been allocated to HPH-
holders during the Suharto era. Table 6 provides a list of HPH timber concessions that
were still active in Riau in 2001.

Table 6: HPH Timber Concessions Active in Riau in 2001

Concession-Holder District HPH Area Year of


(ha) Expiration
PT Siak Raya Timber Kampar, Pelalawan 28,500 2017
PT Siak Pakan Raya Rokan Hulu 46,000 2007
PT Nanjak Makmur Pelalawan 48,370 2020
PT Yos Raya Timber Pelalawan 97,000 2009
PT Inhutani IV (ex Alam Wana Sakti) Pelalawan 70,000 n.a.
PT Inhutani IV (ex Dwi Marta) Pelalawan 57,873 n.a.
PT Inhutani IV (ex Chandra) Indragiri Hilir 36,610 n.a.
PT Inhutani IV (ex HBW) Indragiri Hilir 69,530 n.a.
PT The Best One Uni Timber Pelalawan 50,620 2021
PT Hutani Sola Lestari Kuansing 45,990 2019

17
PT IFA Indragiri Hulu 70,664 2008
PT Dexter Indragiri Hulu 48,000 2012
PT Seberida Wana Indragiri Hilir 132,500 2013
PT Thai Raivithi Indragiri Hilir 98,593 2001
PT Mutiara Sabuk Khatulistiwa Indragiri Hilir 11,595 2020
PT Diamond Raya Timber Rohan Hilir 4,956 2019
PT Essa Indah Timber Rohan Hilir 52,524 2019
PT Triomas FDI Siak 21,653 2009
PT Riau Putra Bersama Bengkalis 49,565 2019
PT Sri Buana Dumai Dumai 63,520 2014
Total -- 1,104,063 --
Source: Ministry of Forestry (2002)

The decline of Riau’s HPH system can be attributed to several factors. First, most of the
provinces’s HPH timber concessions were initially allocated by the Ministry of Forestry
during the 1970s. In recent years, a growing number of HPH-holders have reached the end
of their original 20 year concession contracts (DPPH 1998). While some HPH contracts
have been renewed by the Ministry, many have not. In some cases, this is due to the fact
that large-diameter commercial timber at the concession site has already been exhausted or
remaining timber stands are located in increasingly remote locations, suggesting that the
high rent levels previously associated with HPH operations no longer exist (Barr 2001).

In addition, Riau’s pulp industry is currently facing substantial fiber short-falls, and this
has created considerable pressure for the reclassification of HPH concession areas so that
they may be available for clear-cutting and conversion to other uses (Barr 2002).
Indonesia’s regional autonomy process has also put increasing pressure on the HPH
system, which is widely associated with the highly centralized control over forest resources
and revenues that existed during the Suharto era (Potter and Badcock 2001). With
provincial and district governments now assuming significantly greater authority than they
have had in the past, many are rejecting the extension of HPH timber operations in their
jurisdictions in favor of more localized forms of timber extraction. This is particularly the
case for HPH areas under the control of the national government’s Inhutani IV forestry
enterprise.

No official data are publicly available on HPH-based employment in Riau. To estimate the
employment effects of the sharp decline in HPH timber production, this study sampled
four HPH concessions – three in the Tesso Nilo area and one in the northern part of Riau.
These included: PT Siak Raya Timber, PT Hutani Sola Lestari, PT Nanjak Makmur and
PT Diamond Raya Timber. Table 7 summarizes the aggregate log production volumes and
employment figures from these four concession-holders during the period 1999-2001.6

6
Given the small sample size, a decision was made to average over three years both the production levels
and employment figures reported by the four companies sampled in order to reduce the effects of annual
variations in these figures for any one company. Moreover, it should be noted that when the field work for
this study was conducted in early 2003, two of the four companies were not prepared to release their Year
2002 production figures.

18
Table 7 Cumulative Reported Log Production and Direct Employment Figures for
Sampled HPH Timber Concession-Holders, 1999-2001

Company HPH Cumulative Log Cumulative Log Production


Area (ha) Production Employment Per Worker
(m3) (persons) (m3/person)
PT Siak Raya Timber 38,500 27,572 475 58.0
PT Nanjak Makmur 48,370 55,989 1,085 51.6
PT Hutani Sola Lestari 45,990 33,215 408 81.4
PT Diamond Raya 90,956 167,416 1,730 96.8
Total 223,816 284,192 3,698 76.8
Source: Company reports; interviews with company officials.

The average productivity level at the sampled HPH concession-holders indicates that over
the three year period 1999-2001, one direct employee was associated with the production
of approximately 77 m3 of roundwood produced. If this ratio between direct employment
and roundwood production is extrapolated to the total HPH production figures for the
province (currently including 20 HPH companies), direct employment for Riau’s HPH
sub-sector is estimated to have declined from 8,455 employees in 1999 to1,468 employees
in 2001 – a drop of 82 percent. (In 2002, it is estimated that employment rose to 2,032
workers due to an increase in log production).

The origin of laborers in sampled HPH companies showed considerable variation.


In 2001-2002, for instance, employment of ‘locals’ ranged from only 14 percent at PT
Diamond Raya Timber to 100 percent at PT Siak Raya Timber, while the other two
companies each reported between 60 percent and 70 percent of employees being ‘local’.7
Overall, the sample shows that in 2001-2002, the average HPH concessionaire’s labor
force consisted of 60% of ‘local’ employees and 40% ‘non-locals’. In three of the HPH
companies sampled, ‘non-local’ employees control key steps in the logging operations
such as planning, felling and hauling. Table 8 summarizes the respective wage structures
among HPH workers from Riau and from outside Riau at the concessionaires that were
surveyed.

Table 8: Wage Structure at Surveyed HPH Concessionaires in Riau

Wages
Non-Riau
Riau Worker Worker
Activity (Rp/month) (Rp/month)
Survey/cruising 916,364 --

Planning 779,000 1,300,000


Felling --

7
See footnote under the ‘Methodology’ section above for a description of how ‘local’ and ‘non-local’ are
defined in this study.

19
1,669,022

Hauling/loading 750,000 2,000,000

Transport 1,850,000 1,850,000

Administration 850,000 850,000


Maintenance 633,333 --
Catering 500,000 --

Security 650,000 700,000


Source: Survey data; company records

2.5.2 Land Clearing by IPK Permit Holders

Over the last few years, production of timber by IPK land clearing permit-holders has been
far more substantial than that from HPH logging concessions in Riau. Indeed, log
production by IPK-holders accounts for over 85 percent of the total reported volume of
roundwood produced in the province during 2001, according to Dinas Kehutanan statistics.
To a very significant degree, this has been due to the key role that IPK permits have played
in meeting the wood fiber needs of the province’s sizeable pulp and paper industry and in
clearing land for the development of oil palm estates. The prominence of IPK permits is
evident both in terms of the numbers of permits issued each year and the area encompassed
by these permits.

Between 2000 and 2002, at least 307 IPK licenses were granted in Riau, with about half of
those becoming available in 2001 (see Table 9). During 2000 and 2001, approximately
250,000 ha of forestland were allocated annually for harvesting under IPK land clearing
operations. In 2002, this figure declined to 158,000 ha due to increasing pressure on
forestry authorities to limit the conversion of natural forests to other uses (World Bank
2001). IPK permits have ranged in size from 25 ha to 3,000 ha.

Table 9: Number and Area of IPK Land Clearing Permits in Riau, 2000-2002

District 2000 2001 2002


No. Area (ha) No. Area (ha) No. Area (ha)
Bengkalis 13 40,957 21 31,339 7 12,773
Dumai 2 3,347 2 3,321 1 -
Indragiri Hilir 5 16,950 5 6,920 1 2,400
Indragiri Hulu 11 28,010 9 16,720 6 6,962
Kampar 11 29,391 25 32,779 2 1,150
Kuantan Singingi 2 4,137 8 22,751 5 24,888
Pelalawan 16 59,342 47 72,466 21 50,549
Rokan Hilir 6 22,200 6 10,777 5 12,874

20
Rokan Hulu 6 6,850 18 7,656 15 14,737
Siak 7 36,786 9 43,503 15 31,726
Total 79 247,970 150 248,232 78 158,058
Source: DGLHP IPK 1999-2002.

The official timber production targets for IPK land clearing operations, as reported by the
Provincial Forestry Service, exceeded 19.0 million and 20.0 million m3 in 2000 and 2001,
respectively. In 2002, the timber production target for IPK operations dropped to 13.6
million 3 (see Table 10).

Table 10: Official IPK Timber Production Targets in Riau, 2000-2002

Production target (m3)


District 2000 2001 2002

Bengkalis 3,502,703 3,202,265 1,078,287

Dumai 260,860 247,177 134,659

Indragiri Hilir 961,325 867,298 209,952


Indragiri
Hulu 2,178,410 1,861,414 820,974

Kampar 2,346,490 1,854,639 151,038


Kuantan
Singingi 285,779 987,950 916,225

Pelalawan 5,066,424 5,375,976 3,346,580

Rokan Hilir 1,033,498 947,300 1,073,714

Rokan Hulu 847,501 848,987 1,681,707

Siak 2,575,736 3,897,903 4,241,040

Total 19,058,726 20,090,909 13,654,176


Source: DGLHP IPK 1999-2002

In each of these years, the reported production levels achieved by IPK permit-holders fell
well below the announced targets. In 2000, for instance, reported IPK timber production
levels were 6.2 million m3 – or roughly one-third of the targeted production for that year
(see Table 11). In 2001, reported IPK production fell to 3.6 million m3, or less than 20
percent of that year’s production target. In 2002, reported IPK production rose to 4.8
million m3, again representing roughly one-third of that year’s targeted production. During
these years, 10-20 percent of the total reported timber harvest from IPK operations were

21
commercial logs for sawnwood or wood panel products, while the remaining 80-90 percent
was composed of small-diameter pulpwood logs.

Table 11: Reported IPK Log Production in Riau, 1999-2002

Year Commercial Logs (m3) Pulpwood (m3) Total (m3)


1999/2000 942,725 4,894,958 5,837,683
2000 564,604 5,654,767 6,219,371
2001 666,272 2,990,414 3,656,686
2002 753,553 4,022,038 4,775,591
Total 2,927,154 17,562,177 20,489,331
Source: DGLHP IPK 1999-2002

It is widely recognized that actual log harvests by IPK permit-holders in Riau over the last
several years has been significantly greater than the volumes of IPK log production
reported in the official statistics. There are a number of possible explanations for this. In
general, the Provincial Forestry Service appears to keep poor records of IPK land clearing
operations and rarely conducts field inventories to ascertain whether the volumes of logs
being harvested from a particular IPK site match the volumes that are reported by the
permit-holder. At the same time, companies holding IPK permits have a strong incentive to
under-report the volumes of wood they harvest, and confidential industry sources report
that many IPK-holders routinely do so. On the one hand, under-reporting the actual harvest
volume allows the permit-holder to avoid paying royalties (approximately US$ 2.50 per
m3) on the logs removed. On the other hand, some IPK-holders under-report the volumes
of logs harvested at legitimate IPK land clearing sites in order to maintain the appearance
that there is still standing timber at those sites that can be legally harvested. They then use
the permit to provide a form of legal cover for logs that are harvested illegally from sites
located outside those designated in the permit. With little effective regulation on the part of
government authorities and the absence of a functioning ‘chain of custody’ system in many
companies’ operations, it is often difficult to distinguish between legitimate and
illegitimate IPK land clearing operations.

Estimation of direct employment associated with the production of the reported volumes
harvested from IPK land clearing operations depends, to a significant degree, on whether
these operations are carried out manually or in a semi-mechanized or mechanized manner.
All three types of operations are used, with vastly different productivity levels per labor
input. Table 12 summarizes the labor inputs and productivity levels associated with each
type.

Manual harvesting and land clearing systems will vary according to site and weather
conditions, labor availability, and the availability of chainsaws and other types of
equipment. Typically, manual operations involve harvesting gangs of 8-13 members,
including 2-3 chainsaw operators; 4-6 workers involved in log extraction; and 2-4 workers
involved in loading. Chainsaw operators are responsible for felling, topping, and bucking.
Extraction of logs to the roadside is done manually, although in some cases, buffalo are
used to pull the logs from the harvest site. Loading of the logs onto the truck is also done

22
manually. Manual logging teams can generally harvest approximately 12 m3 of
roundwood per day, or roughly 3,240 m3 per year.

Semi-mechanized land clearing operations typically involve teams of 13-15 workers,


including 6-8 chainsaw operators; 4 heavy equipment operators; 1 in-field mechanic; 1
general worker; and 1 foreman. The chainsaw operators are responsible for felling and
topping, while bucking is either done at the roadside or at the log pond. The logs are
mechanically pre-bunched using an excavator, before being extracted to the roadside by a
skidder or bulldozer. The excavator then loads the logs onto the truck for hauling. Semi-
mechanized teams can generally produce approximately 70 m3 of roundwood per day, or
roughly 18,900 m3 per year.

Mechanized land clearing operations typically involve teams of 17-21 workers, including
10-12 chainsaw operators; 4 heavy equipment operators; 1-2 in-field mechanics; 1-2
general workers; and 1 foreman. Each team generally has two mechanized harvester-
bunchers, which are used for felling, topping, and bunching of the logs. Bucking is done by
chainsaw operators either at the harvest site, or at the roadside before loading, or at the log
pond, depending on whether the logs ar to be hauled by truck or barged. Extraction of the
logs to the roadside is done by skidder or bulldozer, and loading is done by an excavator.
Mechanized land clearing operations can generally produce approximately 234 m3 of
roundwood per day, or roughly 63,180 m3 per year.

Table 12: Labor Inputs and Productivity Levels for Manual, Semi-Mechanized, and
Mechanized Land Clearing Operations

Manual Semi-Mechanized Mechanized


Team consists of: • Chainsaw operators • Chainsaw operators • Chainsaw operators
(2-3) (6-8) (10-12)
• Extraction crew (4- • Heavy equipment • Heavy equipment
6) operators (4) operators (4)
• Loading crew (2-4) • In-field mechanic • In-field mechanics
(1) (1-2)
• General worker (1) • General workers
• Foreman (1) (1-2)
• Foreman (1)
Total team members 8-13 13-15 17-21
Team daily productivity +/- 12 m3/day +/- 70 m3/day +/- 234 m3/day
(m3/day)
Team annual productivity +/- 3,240 m3/yr +/- 18,900 m3/yr +/- 63,180 m3/yr
(m3/year)
Average annual 295 m3/yr 1,350 m3/yr 3,325 m3/yr
productivity per worker
(m3/year)

Direct employment per 1.0 3,390 workers 741 workers 301 workers
million m3/year
Direct employment per 440 workers 96 workers 39 workers

23
1,000 ha/year
Note : Team size and harvesting plan typically vary according to the plantation condition,
topography, weather conditions and machine availability. Average annual productivity levels
assume 270 work days per year. Direct employment per 1,000 ha assumes average yield of 130
m3/ha.

Calculation of average annual productivity levels per worker indicate that there are sharp
differences among manual, semi-mechanized, and mechanized land clearing operations. As
Table 12 indicates, average productivity levels range from 295 m3 per year for workers
engaged in manual land clearing; to 1,350 m3 per year for workers involved in semi-
mechanized land clearing; and 3,325 m3 per year for workers involved in mechanized
operations.

These figures suggest that some 3,390 workers working for a full year would be needed to
generate 1.0 million m3 of roundwood from manual land-clearing operations. By contrast,
semi-mechanized harvesting operations would require 741 workers to generate this volume
of wood, whereas mechanized operations would require only 301 workers. Similarly, for
every 1,000 hectares cleared, manual harvesting operations generate employment for some
440 workers, whereas semi-mechanized and mechanized operations provide jobs for 96
and 39 workers, respectively.

If it is assumed that the 3.6 million m3 of logs reported to have been harvested by IPK
permit-holders were produced in even measure (i.e. 33 percent each) by manual, semi-
mechanized, and mechanized land clearing operations, then approximately 4,640 workers
were involved in the IPK subsector in 2001.8 If, on the other hand, it is assumed that
mechanized land clearing was used to harvest 50 percent of the 3.6 million m3 and semi-
mechanized land clearing was used to harvest 30 percent of the total, then overall
employment in the IPK subsector would drop by 30 percent to 3,782 workers. If the entire
3.6 million m3 were harvested through mechanized land clearing operations, then only
1,084 workers would be employed. Conversely, if the entire 3.6 million m3 were harvested
manually, then 12,203 jobs would be created.

These figures are generally supported by a survey of 27 IPK operations, representing 37


percent of the 78 new permits issued in 2002. Data on 25 IPK land clearing operations
located around the perimeter and inside the Tesso Nilo Forest Complex were compiled by
WWF in Pekanbaru (see Table 31 below). In addition, field visits were made to two IPK
logging operations near Kerumutan, in southeast Riau. In 2002, the sample of 27 IPK
operations generated 1.3 million m3 of timber. Approximately 30 percent of this is
estimated to have been commercial logs used for solid wood products, while the remaining
70 percent was small-diameter pulpwood. This level of production was achieved with a
total labor force of 809 workers involved in production, transport, administration, and
management of the IPK sites.

8
This figure has been determined by dividing 1.2 million m3 (i.e. one-third of 3.6 million m3) by the average
annual productivity per worker for manual land clearing (295 m3/year); for semi-mechanized land clearing
(1,350 m3/year); and for mechanized land clearing (3,325 m3/year).

24
On average, each employee was associated with an annual output of 1,627 m3 of timber. It
should be noted, however, that 600,000 m3 – or roughly 45 percent of the total log
production by the surveyed IPK operations – was produced at two HTI sites managed by
Riau Andalan Pulp & Paper. The use of mechanized land clearing operations at these sites
generated an estimated 181 jobs. An additional 309,000 m3 was harvested from three other
large IPK sites, accounting for nearly 25 percent of the total volume of timber extracted.
These operations generated jobs for 125 workers. Average annual productivity per worker
at these five sites was 2,970 m3 per year (a sum that is slightly lower than the 3,325
m3/year estimated for mechanized operations in Table 12). This suggests that annual
productivity per worker at the 22 remaining IPK sites in the sample was 748 m3 per year
(i.e. 525 workers produced 391,000 m3 in 2002).

The sample also showed that the majority of employees in those companies are not from
Riau. The local population constitutes about 43% of IPK labor force, whereas workers
from outside of Riau make up the remaining 57%. As was the case with HPH concessions,
non-Riau workers come predominantly from neighboring provinces of North, West and
South Sumatra. Table 13 summarizes the respective wage structures for Riau and non-Riau
workers at the surveyed IPK land clearing sites.

Table 13: Wage Structure at Surveyed IPK Land Clearing Sites in Riau

Wages
Riau Worker Non-Riau Worker
Activity (Rp/month) (Rp/month)
Survey/cruising 450,000 550,000
Planning -- 2,500,000
Felling/penebangan 1,125,000 1,125,000
Hauling/loading 1,406,000 --
Transport -- 850,000
Administration -- 1,300,000
Maintenance -- 1,650,000
Catering 275,000 --
Security 625,000 --
Source: Survey data; company records

2.5.3 Undocumented Log Production

As explained earlier in this study, Provincial Forestry Service statistics for 2001 fail to
account for some 13.7 million m3 of roundwood harvested from Riau’s natural forests.
This volume includes approximately 5.4 million m3 of commercial logs used for
sawnwood or plywood production and 8.5 million m3 of MTH pulpwood consumed by the
province’s two pulp mills. These figures have been determined by estimating the log inputs

25
that would have been consumed by Riau’s various wood processing industries to generate
the levels of processed outputs that have been reported for that year.9

It is estimated that at least 12.1 million m3 of the overall undocumented log production
was harvested through land clearing operations similar to those conducted by IPK permit-
holders. Therefore, to estimate the levels of direct employment involved in undocumented
log production in Riau, it is useful to apply the labor productivity levels calculated in the
previous section for manual, semi-mechanized, and mechanized land clearing.

If, for instance, it is assumed that each type of harvesting operation (i.e. manual, semi-
mechanized, and mechanized) was used to produce one-third of the 13.9 million m3 of
logs harvested from undocumented sources, then approximately 20,236 workers would
have been employed in this portion of the sector.10 If, on the other hand, it is assumed that
mechanized land clearing was used to harvest 50 percent of the 13.9 million m3 and semi-
mechanized land clearing was used to harvest 30 percent of the total, then overall
employment in the IPK subsector would drop by 30 percent to 14,396 workers. If the entire
13.7 million m3 were harvested through mechanized land clearing operations, then only
3,124 workers would be employed. Conversely, if the entire 13.9 million m3 were
harvested manually, then 46,440 jobs would be created.

The labor productivity level estimated for manual harvesting is generally supported by the
findings of field surveys of unlicensed logging operations that were conducted by WWF-
Riau in 2001 and 2002. These surveys were carried out to document illegal timber
harvesting in and around four of the province’s largest remaining tracts of natural forest:
Tesso Nilo; Bukit Tigapuluh; Kerumutan; and Rimbang Baling. They found that annual
timber production by unlicensed logging operations was on the order of 600,000 m3 each
year, while the number of people employed in such operations was about 3,000 (see Table
14). Extraction of timber by teams composed of 5-8 loggers is the most common form of
illegal logging in the region. Most of the labor in such logging activities is done manually,
but in recent years modified agricultural machinery, pickup trucks and even motorcycles
have been employed to intensify production and ease the hardships of extracting
increasingly distant stands of commercially valuable timber.

9
It is known, for instance, that Riau’s two major pulp mills have consumed far larger volumes of ‘mixed
tropical hardwoods’ (MTH), reportedly obtained through IPK land-clearing operations, than IPK production
levels reported by the Provincial Forestry Service would suggest. During 2000-2002, the APP group’s Indah
Kiat mill consumed 6.6 million m3 (2000), 6.9 million m3 (2001) and 7.5 million m3 (2002) per year of
MTH which, according to the company, were harvested under IPK permits at its own plantation sites and
sites operated by joint ventures and community out-grower schemes (Barr 2002). Similarly, the APRIL
group’s Riau Andalan pulp mill consumed 4.2 million m3 (2000), 4.4 million m3 (2001), and 4.8 million m3
(2002) per year of MTH, reportedly obtained from IPK land clearing operations at its own plantation
concessions and third-party sites (Barr 2002). Added together, these figures suggest that the province’s pulp
mills consumed 10.8 million m3 (2000), 11.3 million m3 (2001), and 12.3 million m3 (2002) per year of
MTH per year during 2000-2002 – or roughly two to four times the volumes of pulpwood reported by the
Provincial Forestry Service to have been harvested by IPK permit-holders during these years.
10
This figure has been determined by dividing 4.6 million m3 (i.e. one-third of 13.9 million m3) by the
average annual productivity per worker for manual land clearing (295 m3/year); for semi-mechanized land
clearing (1,350 m3/year); and for mechanized land clearing (3,325 m3/year).

26
Table 14: Unlicensed Logging at Four Major Forest Areas in Riau, 2001 and 2002

Forest Area Surveyed No. of No. of Daily


Logging Loggers Production
Teams (m3/day)
Tesso Nilo 82 643 513
Bukit Tigapuluh 337 1,685 674
Kerumutan 95 475 1,425
Rimbang Baling 28 125 58
Daily Total 542 2,928 2,670
Annual Total 542 2,928 587,400
Source: Investigations by WWF-Riau in 2001-2002.
Note: Annual total is an estimate based on the assumption that there are twenty working
days in a month and loggers work eleven months per year (WWF-Riau).

Out of the total 542 logging teams reported to have been operating in 2001 and 2002, a
sample of 82 groups surveyed by WWF in Tesso Nilo and an additional 2 groups in the
Kerumutan area surveyed independently for this report revealed that about 73 percent of
their labor force originates from Riau, whereas 27 percent are from neighboring provinces.
The predominance of local laborers in unlicensed logging is related to the fact that locals
generally possess the familiarity with the landscape that is needed to locate remaining
stands of high quality timber in Riau and the legitimacy needed to extract these resources
within the current political climate. Outsiders typically bring a more sophisticated
technical knowledge, which is often needed to operate and maintain mechanical
equipment, and administrative skills.

2.5.4 HTI Pulpwood Plantation Development

Both APP and APRIL have made substantial investments in pulpwood plantations over the
past decade to develop dedicated fiber supplies for their respective pulp mills.11 APP-
affiliate PT Arara Abadi began planting Acacia at its 300,000 ha (gross) HTI plantation
concession in the mid-1980s in order to supply wood to Indah Kiat. According to company
figures released in January 2002, the annual area planted in recent years has ranged from
13,016 ha in 1996 to 18,888 ha in 2000 (Sinar Mas/APP 2002). The company reports that
through May 2001, total planted area at Arara Abadi was 130,000 ha and overall net
plantable area stood at 178,000 ha.12 Over the last two years, the company has taken steps
to secure an additional 167,000 ha at new sites that will be managed through joint venture
(JV) agreements with unspecified cooperatives (AMEC 2001).

11
It should be noted that forestry companies affiliated with APP are owned and managed by APP’s parent
conglomerate, the Sinar Mas Group.
12
Both of these figures represent substantial downward revisions from previous reports, which estimated that
180,000 ha had been planted through the end of 2000 and that Arara Abadi’s net plantable area was then
217,000 ha (Spek 2000a). The company explains that the recent revisions are “based on GPS measurements
and excluding losses due to land occupation, plantation failures, and previously inaccurate measurements”
(Sinar Mas/APP 2002)

27
APRIL began developing large-scale pulpwood plantations in the early-1990s. Riau
Andalan reportedly has access to 195,000 ha of net plantable area at its own HTI plantation
site; 85,000 ha at plantation sites held by associated and joint venture companies; and
20,000 ha managed by nearby communities as part of an out-grower scheme (RAPP 2001).
According to company figures released in 2001, annual planting at all sites in recent years
has ranged from a high of 27,800 ha in 1997 to a low of 18,700 ha in 2000. The company
claims that through the end of 2000, 151,000 ha had been planted on all sites (RAPP
2001). APRIL, likewise, has taken steps to secure access to 187,000 ha (net) of forestland
that can be converted under joint ventures with 11 different companies now holding
forestry concessions, as well as 7,000 ha (net) that can be converted through community
out-grower schemes.13

With supplies of MTH within a commercial distance of the two mills rapidly declining,
APP and APRIL have announced ambitious plans to fully source their mills’ fiber needs
from plantation-grown Acacia by 2007 and 2009, respectively. In each case, the success of
these plans will depend on the company’s capacity to expand its annual planting program
quite significantly. APP’s wood supply plan is based on annual planting at all sites
effectively tripling from 24,000 ha in 2000 to 73,000 ha in 2005, and remaining at 61,000
ha or more each year thereafter (Sinar Mas/APP 2002). APRIL, likewise, projects that
annual planting at all sites will increase from less than 19,000 ha planted in 2000 to 49,000
ha by 2003 – an increase of 150 percent over a 3-year period (RAPP 2001). The group then
projects that annual planting at all sites will range between 45,000 ha and 49,000 ha
through at least 2020.14 Some industry analysts have expressed skepticism that APP and
APRIL will be able to expand their plantation bases on such a significant scale over such a
short time frame.15

Riau’s Provincial Forestry Service reports that 55,000 ha (net) of pulpwood plantations
were established in the province in 2001 (Dinas Kehutanan 2002). It is assumed that this
figure includes net replanting at existing plantation sites and the establishment of new
plantation sites following the clearance of existing natural forest cover. Although neither
APP nor APRIL has yet published its annual planting figures from 2001 or 2002, this
figure would appear to be quite plausible – indeed, it represents a 28 percent increase in the
combined area (43,000 ha) that the two companies reported planting at all sites in 2000.
Given that Indah Kiat and RAPP are also reported to have consumed approximately 3.9
million m3 of Acacia wood during 2001, it can be estimated that roughly 25,500 ha (net)
13
C. Munoz, personal communication, March 7, 2002, Kerinci. Data provided by APRIL appears to indicate
that 75,000 ha of the JV sites have been planted through the end of 2001.
14
It bears noting that APRIL’s projections imply that it can fully supply a 2.0 million tonne pulp mill by
planting 49,000 ha or less per year, while Sinar Mas/APP projects that it will need annual planting levels of
61,000 ha to supply a mill of the same size. It is possible that this reflects the significantly greater proportion
of Sinar Mas/APP’s plantations that are being developed on peatland soils, as discussed below.
15
AMEC Simons’ recent wood supply assessment of APP’s operations noted, for instance, that “The
projected rates of planting required to accomplish the proposed shift from MTH to Acacia within the
designated time frame (100% plantation wood by 2007), require annual planting rates far above those
achieved in recent years. It was determined in the audit that past targets have not been met (average 83% at
WKS and 70% at AA). The annual planting targets in both Riau and Jambi are very ambitious and represent
large increments from past performance.”

28
of the 55,000 ha (net) of plantations were established through replanting at existing sites.16
This implies that some 29,500 ha (net) of plantations were established at new sites.

As a first step in determining the number of jobs involved in planting 55,000 ha, Table 15
summarizes the standard labor inputs associated with the development of Acacia pulpwood
plantations in Riau. Based on data supplied by RAPP’s forestry staff, they show that
plantation development typically involves seven types of labor inputs over a 7-year harvest
rotation. These include: initial land clearing (for areas where natural forest is being
converted); plantation development (which includes site preparation, planting, weeding,
thinning; and general site management); seedling production; forestry planning (surveying
and mapping); transport; harvesting; and security. Many of these inputs are concentrated at
either the start (i.e. forestry planning, land-clearing, seedling production, site preparation,
planting, and transport) or the end (i.e. harvest and transport) of the rotational cycle --
which, in turn, is the start of the next rotation. In this way, labor inputs associated with
plantation development on any given tract of land are highly cyclical, with sharp peaks in
labor inputs during Year 1, when land clearing and planting occurs, and Year 7, when
harvesting and replanting is done. Labor inputs show a significant drop during the
intervening years (i.e. Years 2-6).

Using the standard labor inputs for HTI development summarized in Table 15, it can be
calculated that some 14,468 workers were directly involved in the clearing and planting of
55,000 ha (net) of pulpwood plantations that were reported to have been developed in 2001
(see Table 16). It should be noted that this calculation assumes that 25,500 ha of the total
area was re-planted on existing HTI plantation sites where 3,935,000 m3 of Acacia were
harvested before the new planting was carried out. This initial harvesting activity involved
some 1,846 workers, or 13 percent of the total. The remaining 29,500 ha is estimated to
have been planted on newly established sites following the clearing of natural forest. This
processing involved 1,278 workers, or 9 percent of the total.17 Approximately 7,400
workers, or 50 percent of the total, were involved directly in plantation development
activities, which included site preparation, planting, and weeding. Just over 11 percent of
the overall employment were involved in seedling production (1,617 workers) or transport
(1,668 workers), respectively.

The numbers of workers directly involved in managing the 55,000 ha of pulpwood


plantations that were developed in 2001 are projected to decline to 3,214 during the
plantation’s second year (see Table 16). Approximately 90 percent of the labor inputs
during Year 2 are associated with weeding and thinning. During Years 3-6, labor inputs for
the entire area are estimated to drop sharply to 728 workers, as little management of the
plantation is required. During Year 7, labor inputs rise dramatically to 17,601 workers, as
this is when harvest of the first rotation of Acacia and replanting occurs.

16
This figure is based on the assumption that Acacia stands planted in 1995 had mean annual increments of
22 m3/ha/yr to generate yields of 154 m3/ha.
17
Labor input for land clearing at the 29,500 ha of newly established HTI sites will be subtracted from the
estimate of total direct employment for the HTI pulpwood plantation subsector in 2001, in order to avoid
duplication of labor estimates for IPK land clearing and undocumented log production, as calculated in the
preceding sections.

29
To calculate total direct employment in the HTI pulpwood plantation subsector in Riau
during 2001, it is necessary to determine not only the labor involved in the development of
the 55,000 ha of newly planted sites, but also labor inputs at existing plantation sites that
were planted over the preceding several years. To be clear, Table 16 includes an estimate
for the numbers of workers (1,846) involved in the harvest of 25,500 ha of Acacia
plantations during 2001. Under a 7-year rotation, it is likely that these areas would have
been planted in 1995. If it is assumed that total annual planting at all plantation sites in
Riau averaged 40,000 ha (net) per year during 1996-2000, then the labor involved in
managing these sites during Years 2-6 can be assumed to be roughly three-quarters of the
labor required during Years 2-6 to manage the 55,000 ha (net) of plantations detailed in
Table 16. This amounts to 4,594 workers.

To summarize, this section has estimated that the clearing and planting of 55,000 ha (net)
of Acacia pulpwood plantations in Riau during 2001 generated direct employment for
14,468 workers. Of these, 1,278 workers were involved in land clearing activities on
approximately 29,500 ha, and their labor has therefore already been counted in preceding
sections. Subtracting this figure from the total suggests that 13,190 workers were uniquely
involved in the establishment of the 55,000 ha (net) that were planted in 2001. In addition
the HTI subsector generated direct employment for some 4,594 workers who were
involved in managing existing plantations covering an estimated 200,000 ha (net).

These figures indicate that the HTI subsector provided direct employment for a total of
17,784 workers in 2001. By adding together the 55,000 ha (net) of newly established sites
and replanted areas developed in 2001 and the 200,000 ha (net) established during 1996-
2000, it can further be estimated that the net planted area under active management by HTI
companies in 2001 was approximately 255,000 ha.18 If it is assumed that net planted area
represents 65 percent of the gross area under active management, then the gross area of
HTI plantations under active management in 2001 was approximately 400,000 ha.

A survey of three HTI plantation sites located on the perimeter of the Tesso Nilo Forest
Complex found that over 80 percent of the workers at these sites were migrants from other
provinces.19 A significant portion of them came from East Java and West Kalimantan. The
average wage structure for operational workers at these sites is summarized in Table 17.

Table 17: Wage Structure at Surveyed HTI Pulpwood Plantations

Wages
Activity Riau Worker Non-Riau Worker
(Rp/month) (Rp/month)
Administration 656,521 757,650

18
This calculation assumes that the 25,500 ha of plantation sites that were replanted in 2001 represented the
entire area that had been planted seven years earlier in 2005.
19
Surveyed plantation companies included PT Rimbah Penarap Indah, PT Ekawana Lestaridharma, and PT
National Timber.

30
Land preparation 474,637 386,106
Nursery 445,474 386,106
Planting 485,117 386,106
Weeding, thinning 473,280 386,106
Transport 477,221 386,106
Security 594,854 815,166
Source: Survey data; company records

31
Table 15: Standard Labor Inputs for HTI Pulpwood Plantation Development in Riau, Based on a 7-Year Harvest Rotation

Activity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7


Land Clearing
Chainsaw operators 1:20 m3/day 0 0 0 0 0 0
Equipment operators 1:50 m3/day 0 0 0 0 0 0
In-field mechanics 1:150 m3/day 0 0 0 0 0 0
General workers 1:100 m3/day 0 0 0 0 0 0
Foremen 1:300 m3/day 0 0 0 0 0 0

Plantation Development
Workers 1: 8 ha 1:20 ha 1:150 ha 1:150 ha 1:150 ha 1:150 ha 1: 8 ha
Foremen 1:150 ha 1:500 ha 1:3000 ha 1:3000 ha 1:3000 ha 1:3000 ha 1:150 ha
Assistants 1:750 ha 1:2500 ha 1:5000 ha 1:5000 ha 1:5000 ha 1:5000 ha 1:750 ha
Supervisors 1:10000 ha 1:10000 ha 1:10000 ha 1:10000 ha 1:10000 ha 1:10000 ha 1:10000 ha
Administration 30/sector* 30/sector 30/sector 30/sector 30/sector 30/sector 30/sector

Seedling Production
Workers 1:200 1:200
seedlings/day** seedlings/day
Equipment operator 35/sector During Years 2-6, nursery operations are oriented toward providing seedlings for 35/sector
Foremen 1:15 workers other plantation sites. 1:15 workers
Supervisors 1/sector 1/sector

Forest Planning
Surveyor aides 6/team*** 6/team
Surveyors 1/team During Years 2-6, labor required for forest planning is assumed to be 10 % of that in 1/team
Supervisors 1/sector Years 1 and 7. 1/sector

Transport20

20
According to the RAPP data, employment in transport will differ in Year 1 and Year 7 because MTH and Acacia have somewhat different yields per ha. RAPP
officials claim that in Year 1, land clearing activities will yield, on average, approximately 130 m3 per ha. In Year 7, harvest of Acacia from the HTI site will
produce about 200 m3 of Acacia per ha.
Equipment operators 1:20 m3/day 1:20 m3/day
Support 1:100 m3/day 1:100 m3/day
Supervisors 1:350 m3/day During Years 2-6, labor required for transport is assumed to be approximately 5 % of 1:350 m3/day
that in Years 1 and 7.
Administration 1/sector 1/sector

Harvesting
Chainsaw operators 0 0 0 0 0 0 1:20 m3/day
Equipment operators 0 0 0 0 0 0 1:50 m3/day
Chokermen 0 0 0 0 0 0 1:50 m3/day
General workers 0 0 0 0 0 0 1:100 m3/day
Scalers 0 0 0 0 0 0 1:150 m3/day
In-field mechanics 0 0 0 0 0 0 1:150 m3/day
Guards 0 0 0 0 0 0 1:150 m3/day
Harvest supervisor 0 0 0 0 0 0 1:300 m3/day
Harvest planning 0 0 0 0 0 0 1:300 m3/day

Security
Rangers 1:700 ha 1:700 ha 1:700 ha 1:700 ha 1:700 ha 1:700 ha 1:700 ha
Supervisors 1/sector 1/sector 1/sector 1/sector 1/sector 1/sector 1/sector

Source: Interviews with RAPP forestry officials, February 2003.


Notes: *A sector covers an area of approximately 20,000 ha. ** Approximately 1386 seedlings are needed for 1 ha of HTI plantation. *** One
team is needed for every 500 ha.

33
Table 16: Labor Inputs for HTI Plantation Development Over a 7-Year Harvest Rotation on 55,000 ha (29,500 ha on New Sites and
25,500 ha on Existing HTI Sites)
Activity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Land Clearing (mechanized)
on 29,500 ha of New Sites a
Chainsaw operators 710 0 0 0 0 0 0
Equipment operators 284 0 0 0 0 0 0
In-field mechanics 95 0 0 0 0 0 0
General workers 142 0 0 0 0 0 0
Foremen 47 0 0 0 0 0 0
Subtotal 1,278 0 0 0 0 0 0
Harvesting of Acacia on 25,500
ha of Existing HTI sites b
Chainsaw operators 729 0 0 0 0 0 0
Equipment operators 291 0 0 0 0 0 0
Chokermen 291 0 0 0 0 0 0
Scalers 146 0 0 0 0 0 0
General workers 97 0 0 0 0 0 0
Guards 97 0 0 0 0 0 0
Mechanics 97 0 0 0 0 0 0
Harvest supervisors 49 0 0 0 0 0 0
Harvest planners 49 0 0 0 0 0 0
Subtotal 1,846 0 0 0 0 0 0
Plantation Development
Workers 6,875 2,750 366 366 366 366 6,875
Foremen 367 110 18 18 18 18 367
Assistants 73 22 11 11 11 11 73
Supervisors 6 6 6 6 6 6 6
Administration 83 83 83 83 83 83 83
Subtotal 7,404 2,971 485 485 485 485 7,404
Seedling Production
Workers 1,417 0 0 0 0 0 1,417
Equipment operator 96 0 0 0 0 0 96
Foremen 101 0 0 0 0 0 101
Supervisors 3 0 0 0 0 0 3
34
Subtotal 1,617 0 0 0 0 0 1,617
Forest Planning
Surveyor aides 660 66 66 66 66 66 660
Surveyors 110 10 10 10 10 10 110
Supervisors 3 1 1 1 1 1 3
Subtotal 773 77 77 77 77 77 773
Transport
Equipment operators 1,324 66 66 66 66 66 2,037
Support 265 13 13 13 13 13 407
Supervisors 76 4 4 4 4 4 116
Administration 3 1 1 1 1 1 3
Subtotal 1,668 84 84 84 84 84 2,563
c
Harvesting
Chainsaw operators 0 0 0 0 0 0 2,037
Equipment operators 0 0 0 0 0 0 815
Chokermen 0 0 0 0 0 0 815
General workers 0 0 0 0 0 0 407
Scalers 0 0 0 0 0 0 272
In-field mechanics 0 0 0 0 0 0 272
Guards 0 0 0 0 0 0 272
Harvest supervisor 0 0 0 0 0 0 136
Harvest planning 0 0 0 0 0 0 136
Subtotal 0 0 0 0 0 0 5,162
Security
Rangers 79 79 79 79 79 79 79
Supervisors 3 3 3 3 3 3 3
Subtotal 82 82 82 82 82 82 82

Total 14,668 3,214 728 728 728 728 17,601


Sources: Derived from data provided by RAPP Forestry Department, February 2003.
Note: a Labor inputs for initial land clearing activities on 29,500 ha of new plantation sites are based on assumed yields of 130 m3/ha for MTH
cleared from natural forest; b Labor inputs for harvesting of Acacia from 25,500 ha of existing HTI plantation sites are based on assumed yield of
154 m3/ha for sites planted in 1995; c Labor inputs for harvesting of Acacia at HTI sites planted in 2001 are based on the assumed yields of 200
m3/ha.

35
2.6 Employment from Wood Processing Industries

This part of the study assesses the numbers of workers that are directly employed in
various types of wood processing in Riau. The sections below examine each of the
following segments of the provincial wood processing industries: plywood and wood-
working mills; licensed sawmills; unlicensed sawmills; and pulp and paper production.

2.6.1 Plywood and Wood Working Mills

According to provincial forestry statistics, Riau had 14 plywood and woodworking mills
operating in 2000 – down from 16 mills in 1998 -- and they produced 1,037,066 m3 of
wood panels and other processed wood products (see Table 18) (Dinas Kehutanan 2001).
In 2001, the number of mills had declined further to 13, but overall production had risen
slightly to 1,052,316 m3. By early-2003, at least one additional mill had closed.

Table 18: List of Plywood Mills in Riau by Location and Production Capacity, 2000

Company Name District/Municipality Plywood Capacity


(m3/yr)
PT Kea Wood Industries II Kampar 78,000
PT Olympia Veneer Indragiri Hulu 24,000
PT Korindo Abadi Kepulauan Riau 164,000
PT Asia Forestama Raya Pekanbaru 40,000
PT Nusantara Pacific Pekanbaru 36,000
PT Ewan Super Wood Pekanbaru 17,250
PT Sola Gratia Plywood Pelalawan 70,000
PT Kampariwood Industries Siak 42,000
PT Perawang Lumber Industry Siak 95,600
PT Panca Eka Bina Plywood Siak 120,000
PT Siak Raya Timber Siak 120,000
PT Kea Wood Industries Siak 78,000
PT Pertiwi Prima Plywood Siak 40,800
PT Murini Timber Siak 30,000
PT Surya Dumai Industries Siak 140,000
PT Ardjuna Perdana Rokan Hilir 67,000
Total 1,162,650
Source: Kanwil Riau 2000

To assess the numbers of workers employed by Riau’s plywood and wood-working


subsector, a sample of six mills – representing approximately 50 percent of the province’s
total installed capacity – was surveyed. Table 19 summarizes the capacities, production
levels, and numbers of workers employed by these mills in 2001 and 2002. The survey
shows that the six sampled mills employed 10,770 during 2001 and 9,748 workers during
2002, respectively. Average productivity levels per worker during at these mills was
approximately 39.6 m3 of plywood per year.
Table 19: Production and Employment Levels for Surveyed Plywood and Wood Working
Mills, 2000 and 2001

Company Capacity 2001 2002


(m3/yr) Prod’n (m3) Employees Prod’n (m3) Employees
Surya Dumai 140,000 67,038 1,907 92,905 2,241
Siak Raya 120,000 122,058 3,107 121,206 2,551
Panca Eka Bina 120,000 93,946 2,081 118,988 1,931
Sola Gratia 70,000 17,700 590 8,750 300
Asia Forestama 40,000 78,111 2,600 64,212 2,140
Ewan Superwood 17,250 10,750 485 13,500 585
Total 507,250 389,603 10,770 419,561 9,748
Source: Company data and records from Dinas Kehutanan Propinsi Riau for production and
employment figures. Processing capacity figures are from Kanwil Riau 2000.

If the average employment-production relationship obtained in the survey is applied to the


total plywood and wood working production for Riau in 2000 (1,037,066 m3), the overall
employment for this sub-sector would be around 26,188 workers. Similarly, in 2001
employment in plywood and wood working mills in Riau would total 26,573 people. It
should be noted that both estimates are far in excess of approximately 12,000 strong labor
force reported by the provincial forestry officials in these mills in both years (Dinas
Kehutanan 2001).

At the mills surveyed during the course of this study, approximately 60 percent of the
workers originated from Riau, while roughly 40 percent were migrant laborers from
neighboring provinces.

2.6.2 Licensed Sawmills

Sawnwood production represents an important segment of Riau’s wood processing sector.


In 2001, the province had an estimated 600 sawmills in operation. Of these, approximately
350 were believed to possess the licenses and permits necessary to operate legally, whereas
the remaining 250 mills were operating without legal approval (Dinas Kehutanan 2001;
WWF 2001). In contrast to Riau’s plywood industry, the sawnwood subsector has grown
in recent years, with 38 new licensed mills initiating operations between 2000 and 2001.

Statistics from the Provincial Forestry Service indicate that in 2000, Riau’s licensed
sawmills produced approximately 960,000 m3 of lumber, and employed over 9,900
workers (see Table 20). In 2001, output from the province’s licensed sawmills rose to just
under 1.2 million m3 of lumber, and it is estimated that this segment of the forestry sector
then employed approximately 12,250 workers. If it is assumed that these mills are, on
average, operating with a 50 percent rate of efficiency, then it is likely that they consumed
some 2.4 million m3 of roundwood during 2001. (Production figures for 2002 were not
available at the time this study was conducted).

37
Table 20: Production and Log Consumption by Licensed Sawmills in Riau, 2000-2001

Number of Production Logs Consumed Workers


Year Sawmills (m3) (m3) Employed
2000 312 959,434 1,918,868 9,905
2001 350 1,187,364 2,374,728 12,253a
Source: Statistik Dinas Kehutanan Propinsi Riau 2001.
Note: a Employment figures for 2001 are estimates based on labor productivity in 2000.

Due to time limitations when the field work for this study was conducted, it was possible
to survey directly only four licensed sawmills. Two of the sampled sawmills were located
in the Tesso Nilo area, and the other two were found near Bukit Tigapuluh National Park
in the south of Riau. Given the small sample size, it must be emphasized that the results
should only be extrapolated to the provincial level with extreme caution, as they clearly do
not represent a statistically relevant sample.

The four licensed sawmills surveyed for this study produced 4,935 m3 of lumber in 2001
and employed 68 workers. In 2002, they produced 6,650 m3 of lumber and employed 70
workers. The data indicate that within the sample, the labor-production ratio in 2001 was 1
employee per 72.6 m3 of sawn timber. If this relationship is applied to overall sawn timber
production by licensed sawmills in Riau in 2001, the total employment figure for the
province that year is extrapolated to be 12,499 persons. This figure is, in fact, quite close to
the estimated 12,253 workers employed by Riau’s licensed sawmills that was derived from
Dinas Kehutanan production and employment data for 2000 and 2001 (see Table 20
above). Similar calculations for the 2002 are not possible as the sawn timber production
data for Riau province have not yet been published.

The sample shows that workers from outside Riau dominate employment in the province’s
licensed sawmills. In 2001, the total labor force of 68 workers in the sample was
comprised of 28 Riau residents (42%) and 40 migrants (58%). In 2002, this changed only
very slightly, as 28 of the 70 workers in the four surveyed mills were Riau residents (40%)
and 42 were migrants (60%). Employees from outside Riau are generally reported to
originate from North Sumatra, West Sumatra and other neighboring provinces.

Reported wage structures at the four sawmills that were surveyed suggest that there is
often a disparity between Riau and non-Riau workers in terms of the distribution of higher-
paying jobs. The Riau residents and migrants seem to be involved in the production
process in more or less equal measure, with generally identical wages for workers involved
in the same jobs. However, most of the higher-paying jobs at the mills – that is,
administration, supervision, general repairs and maintenance of saw blades -- are often the
domain of workers from outside Riau (Table 21).

38
Table 21: Wage Structure for Licensed Sawmills in Riau, 2002

Wages
Riau Worker Non-Riau Worker
Activity (Rp/month) (Rp/month)
Administration -- 1,000,000
Supervisor -- 1,750,000
Grader 750,000 750,000
Operator 730,000 730,000
Assistant 540,000 540,000
Helper 750,000 --
Blade sharpening -- 1,000,000
Security 400,000 --
Maintenance -- 750,000
Catering 250,000 300,000
Book keeping 300,000 300,000
Source: Survey data, February 2003.

2.6.3 Unlicensed Sawmills

The majority of unlicensed sawmills in Riau are concentrated in areas containing the
largest remaining tracts of natural forest. Surveys conducted by WWF-Riau in 2001 and
2002 identified 250 unlicensed sawmills in the vicinity of four main forest complexes in
Riau (Table 22). Cumulatively, these mills employed over 2,600 people and produced
nearly 900,000 m3 of sawn timber per year.

Table 22: Unlicensed Sawmill Production and Employment in Riau, 2001-2002

Sawmills
Forest Area Number of Production
Employment
mills (m3/day)
Tesso-Nilo 85 370 3,018
Bukit Tigapuluh 52 949 268
Kerumutan 101 1,212 606
Rimbang Baling 12 110 50
Total per day 250 2,641 3,942
Total per year 250 2,641 867,240
Source: Investigations by WWF-Riau in 2002, follow-up to data from 2001.
Note: Annual total is an estimate based on the assumption that there are 20 working days in
a month and sawmills operate 11 months per year (WWF-Riau).

39
The WWF surveys conservatively estimate that unlicensed sawmills in Riau do not recover
more than 50 percent of the logs they process. Based on such assumption, the raw material
needed to produce 867,240 m3 of sawnwood would be approximately 1,734,480 m3 of
logs. These figures are comparable to the officially reported volumes of logs consumed
and sawnwood produced by licensed sawmills (see Table 20). This suggests that the real
production of sawn timber in Riau may be about twice the volume that is reported.

The labor force in unlicensed sawmills is largely composed of workers from outside of
Riau. The data on unlicensed sawmills in the vicinity of Tesso Nilo and Bukit Tigapuluh
National Park show that around 74% of the labor is from the provinces neighboring Riau.
Only 26% are Riau residents. This ratio would indicate that approximately 1,954 Riau
residents and 687 migrant workers were employed in unlicensed sawmills in Riau in 2001-
2002.

It is possible that the figures reported by the WWF survey significantly underestimate the
numbers of illegal sawmills operating in Riau, as well as the numbers of workers employed
in this subsector. In a confidential report, the District Forestry Service in Indragiri Hulu
identified 140 unlicensed sawmills in that district alone. These mills were reported to have
produced 86,715 m3 of sawntimber in 2001 and to have employed 2,077 workers. This
suggests that, on average, annual productivity levels per worker were 42 m3/person/year at
the Indragiri Hulu mills. By contrast, the WWF data suggests that annual productivity
levels per worker were 328 m3/person/year at the 250 illegal sawmills covered in those
surveys. This pronounced discrepancy suggests that further information is needed to
determine, with a greater degree of reliability, the numbers of unlicensed sawmills
operating in Riau, the numbers of workers employed at these facilities, and the
productivity of these workers.

2.6.4 Pulp and Paper Production

Riau’s pulp and paper industry has undergone very rapid expansion in recent years. PT
Indah Kiat Pulp & Paper, the APP group’s flagship mill located in Perawang, expanded its
pulp production capacity from 790,000 tonnes per annum in 1995 to 2.0 million tpa in
2001 (Spek 2000; APP 2002). During the same period, the company also raised its
installed paper production capacity from 200,000 tonnes to 700,000 tonnes per annum. In
2001, Indah Kiat reportedly produced 1.8 million tonnes of pulp, of which 1.2 million
tonnes were sold externally (APP 2002).

The APRIL group’s PT Riau Andalan Pulp & Paper increased its pulp processing capacity
from 850,000 tonnes per annum in 2000 to 1.3 million tpa in early 2001 with the
installation of a second pulp line (PL-2A). Very shortly thereafter, it installed an additional
pulp line (PL-2B) to raise capacity to 2.0 million tpa (Barr 2001). In 2002, the company
also installed a second paper machine to bring its paper production capacity to 700,000
tonnes. In 2001, RAPP reportedly produced 1.3 million tonnes of pulp and 281,000 tonnes
of printing and writing paper. In 2002, the company’s production rose to 1.7 million tonnes
of pulp and 295,000 tonnes of paper.

40
This section examines employment figures associated with RAPP’s pulp and paper
operations, and these figures are then extrapolated to estimate direct employment at Indah
Kiat’s pulp and paper complex.21 Given that the installed pulp and paper production
capacities at RAPP and Indah Kiat are quite similar, an estimate of the numbers of workers
employed by Indah Kiat can be derived from employment figures reported by RAPP.

RAPP officials report that the Riau Andalan Pulp & Paper mill complex and related
transport and shipping facilities directly employ approximately 3,420 workers. As Table 23
shows, nearly one-half of these – or 1,548 workers – are employed at RAPP’s pulp mill.
The remainder are employed at the company’s paper mill (543 employees); affiliated
transport and shipping facilities (731 employees); the mills’ power plant (245 employees);
an onsite chemical plant (17 employees); catering and support services for the town site at
the mill complex (221 employees) and security at the mill and town sites (125 employees).
In interviews, RAPP officials indicated that most of these employees are considered to be
members of the company’s permanent labor force, and are paid on a monthly basis.

Table 23: Direct Employment at APRIL’s Riau Andalan Pulp & Paper Mill Complex

Segment of Operations Number of Jobs Percent of Total


Pulp mill 1,548 45
Paper mill 543 16
Transport and shipping 731 21
Power plant 245 7
Chemical plant 17 1
Catering and support services 221 6
Security 125 4
Total 3,420 100
Source: Interview with RAPP officials, Pangkalan Kerinci, Riau, February 2003.

The number of workers employed by RAPP at its pulp and paper mill complex is surpassed
quite significantly by the numbers employed by the company at affiliated forestry
operations. As described above, the company sources its wood from IPK land-clearing
activities and Acacia pulpwood plantations at the company’s own HTI plantation
concessions; from IPK land-clearing and plantation development at ‘joint venture’ sites;
and from IPK land-clearing activities at third-party sites. APRIL officials report that direct
employment at RAPP’s own forestry operations in 2001 totaled 8,751 workers.
Approximately one-quarter of these (2,182 workers) were classified as ‘permanent
employees’ and paid on a monthly basis, one-fifth were classified as ‘permanent daily

21
Of the province’s two pulp and paper producers, only APRIL agreed to participate in this study, and
company officials met with Krystof Obidzinski at RAPP’s mill site in Pangkalan Kerinci in February 2003.
By contrast, APP declined to meet with the study’s authors or to make information available about
employment at their companies’ operations, in spite of multiple requests. However, the fact that the RAPP
and Indah Kiat pulp mills are operating on effectively the same scale suggests that the numbers of workers
employed by the two companies – at least in relation to pulp production and associated forestry operations --
are likely to be fairly similar.

41
labor’ or ‘target-based labor’ (536 and 1,184 workers, respectively); while over one-half
were classified as ‘irregular daily laborers’ (4,849 workers).

In 2002, total direct employment in RAPP’s forestry activities reportedly declined


significantly to 6,521 workers. According to company officials, this resulted from greater
out-sourcing (sub-contracting to local firms) of forestry operations.

Wage levels for RAPP employees working at the operational level, as reported by
company officials in February 2003, range from Rp 435,000 per month for unskilled
workers to Rp 5.5 million per month for some managers (see Table 24). These figures
cover basic salary only, and are exclusive of transport and food allowances, health
coverage, and other benefits provided by the company. Salaries for employees at the
administrative level are significantly higher than this.

Table 24: Basic Wage Structure for Operational Level Employees at PT Riau Andalan
Pulp & Paper

Type of Labor Monthly Wage


(Rp/month)
Unskilled-semiskilled 435,000-1.1 million
Skilled 595,000-1.6 million
Supervisor-superintendent 1-4.9 million
Managerial 2.3-5.5 million
Source: Interview with RAPP officials, Pangkalan Kerinci, Riau, February 2003. These figures
represent basic salary only, and do not include transport allowance, medical benefits, food
allowance and other benefits.

RAPP’s labor force at both the mill complex and the company’s forestry operations is
predominantly composed of workers who originated from outside Riau. RAPP officials
reported that approximately 35 percent of the overall labor force comes from ‘Riau and
West Sumatra’, suggesting that Riau ‘locals’ constitute some subset of this group.
Approximately 33 percent of the labor force comes from North Sumatra and Aceh, while
23 percent is from Java, and the remaining 6 percent comes from other locations.

In addition to employment generated at the company’s mill complex and forestry


operations, RAPP has also created jobs associated with the company’s community
development program. Since 1999, RAPP has conducted various community development
initiatives in 71 villages within five sub-districts (kecamatan), located near the mill site.
According to RAPP officials, these programs have cost the company approximately US$ 7
million annually and cover a wide range of activities, including: agricultural extension
services (i.e. an integrated farming systems program); village infrastructure development
(i.e. roads, schools, mosques); educational assistance; support for social and communal
activities; as well as financial support and training for small- and medium enterprise
development. RAPP officials reported that community development activities have
generated 70 jobs for RAPP staff, as well as significant livelihood improvements for
participating villages.

42
Direct employment at APP’s Indah Kiat Pulp & Paper mill complex in Perawang can be
extrapolated, with some degree of reliability, from the employment figures reported by
RAPP. Like RAPP, Indah Kiat has an installed pulp production capacity of 2.0 million
tonnes per annum and an installed paper production capacity of 700,000 tonnes per annum.
Although the actual production levels at the two mills clearly vary over time, the fact that
the two mills have essentially identical production capacities (at the time this study was
conducted) suggests that the number of workers directly employed by Indah Kiat is likely
to be very similar to the employment figures reported by RAPP: approximately 3,400
workers total at the mill complex, with approximately 45 percent employed at the pulp
mill; 16 percent at the paper mill; 21 percent at the company’s transport and shipping
facilities; 7 percent at the mills’ power plant; less than 1 percent at the complex’s chemical
plant; 6 percent in catering and support services for the town site at the mill complex; and
less than 4 percent in security at the mill and town sites (see Table 25).

Table 25: Estimated Direct Employment at APP’s Indah Kiat Pulp & Paper Mill Complex

Segment of Operations Number of Jobs Percent of Total


Pulp mill 1,550 45
Paper mill 540 16
Transport and shipping 730 21
Power plant 240 7
Chemical plant 20 1
Catering and support services 220 6
Security 120 4
Total 3,420 100
Source: Derived from employment figures for RAPP, presented in Table 23 above.

Like RAPP, Indah Kiat probably accounts for direct employment of between 6500 and
8700 jobs at affiliated forestry and plantation operations. As described above, many of
these are linked to the operations of PT Arara Abadi, the Sinar Mas Group plantation
company which manages a 300,000 ha (gross) HTI plantation concession in Riau to supply
wood to the Indah Kiat pulp mill. As with RAPP, it is likely that many of these jobs are not
permanent positions; rather, a majority of them are likely to be classified as ‘target-based
labor’ or ‘irregular daily labor’. It is unclear what, if any, jobs have been created by
community development efforts on the part of Indah Kiat and its affiliated companies.

From this analysis, it can be concluded that Riau’s pulp and paper industry directly
employs some 6800 people at the province’s two large mill complexes. Moreover, it is
estimated that RAPP and Indah Kiat currently account for direct employment of up to
15,000 jobs at associated forestry and plantations operations (discussed above under the
sections on ‘HTI Pulpwood Plantation Development’ and ‘Land-Clearing by IPK Permit-
Holders’). It should be emphasized that this figure is only a very rough estimate due to the
fact that APP declined to participate in this study. It should also be stressed that a
significant portion of the jobs at RAPP and Indah Kiat’s forestry and plantation operations

43
are temporary in nature and that the numbers of jobs available at particular plantation sites
are highly cyclical (i.e. peaking in years when planting and harvesting occur).

2.7 Summary and Analysis

This study has calculated the levels of direct employment generated by the various types of
roundwood production and wood processing industries in Riau’s forestry sector during
2001. It is estimated that, on aggregate, some 86,500 workers were employed in the sector.
Of these, approximately 38,000 workers were engaged in commercial timber or pulpwood
production, while just over 48,500 were involved in processing activities at plywood,
sawnwood, or pulp and paper mills.

2.7.1 Direct Employment from Commercial Timber and Pulpwood Production

Table 26 summarizes the levels of direct employment associated with each type of
commercial timber extraction and pulpwood production during 2001. It shows that HTI
pulpwood plantations accounted for approximately 48 percent of the overall employment
in log production, with over 17,700 workers involved in planting 55,000 ha and harvesting
3.9 million m3 at existing plantation sites. It is, likewise, estimated that some 14,400
workers – or 38 percent of the total -- were involved in harvesting 13.9 million m3 of
roundwood from undocumented sources, accounting for roughly two-thirds of the logs
produced in the province. Reported IPK land clearing activities employed just under 3,800
workers (or 10 percent of the total), while HPH logging concessions employed over 2,000
workers (or 5 percent of the total).

Table 26: Direct Employment from Commercial Timber and Pulpwood Production in Riau
Province, 2001

Subsector Log Production Area Planted Direct Percent of


(m3) (ha) Employment Total (%)
HPH Logging Concessions 113,065 0 2,032 5.3
IPK Land Clearing 3,656,686 0 3,782 9.9
Undocumented Log Production 13,944,089 0 14,396 37.9
HTI Pulpwood Plantations 3,935,000 55,000 17,784 47.9
Total 21,648,840 55,000 37,944 100.0
Note: Employment figures for ‘IPK land clearing’ and ‘Undocumented log production’ both
assume that 50 % of total production is conducted through mechanized operations, 30 % through
semi-mechanized operations, and 20 % through manual operations.

These figures document the relationship between log production and direct employment
during year 2001 only – effectively providing a snapshot of a particular historical moment.
To put these figures in a broader perspective, however, it is useful to consider what they
may mean in relation to the major trends in roundwood production that are now occurring
in Riau. This section summarizes these trends and analyses their likely implications for
employment in the province’s forestry sector.

44
First, selective logging by HPH concession-holders was the largest source of timber
production through the mid-1990s, but the HPH subsector is now in a process of rapid
decline. Of the 63 HPH timber concessions allocated by the Ministry of Forestry during
Suharto’s New Order regime, no more than 20 are still operating. Reported log production
by HPH-holders dropped from 863,000 m3 in 1998 to 113,000 m3 in 2001. In many cases,
HPH concessions that were originally allocated in the 1970s and early 1980s have not been
renewed when their 20 year contracts have expired. Under Indonesia’s regional autonomy
process, provincial and district officials have frequently reallocated these areas for
conversion to other uses. This study estimates that direct employment for Riau’s HPH
subsector declined from 8,455 employees in 1999 to 1,468 employees in 2001 – a drop of
more than 80 percent over the preceding three years alone.

Second, forest conversion has risen sharply in recent years, and land clearing is now the
dominant means of log production in Riau. This increase in forest conversion has been
driven, to a large extent, by the growing demand for wood fiber on the part of Riau’s pulp
industry and the expansion of the province’s oil palm sector – two processes that are often
inter-linked. The provincial government has supported this large-scale increase in land
clearing by allocating over 300 IPK permits between 2000 and 2002, thereby authorizing
the clearance of all standing forests on an aggregate area of 655,000 ha.

In 2001, reported roundwood production from IPK sites totaled 3.6 million m3. In
addition, this study estimates that at least 12.7 million m3 of wood, and perhaps as much as
13.9 million m3, was harvested through the clearing of natural forests from undocumented
sources. Altogether, reported and unreported land clearing in Riau is estimated to have
totaled up to 17.6 million m3 in 2001. This involved the clearing of approximately 135,000
ha and generated employment for over 18,000 workers (accounting for 48 percent of the
total employment in commercial log and pulpwood production for the province). It should
be noted that less than one-fifth of the entire area cleared was replanted with Acacia for
pulpwood production.

As Table 27 shows, land clearing (from reported IPKs and undocumented sources)
involves a far higher level of labor input per unit of land than either HTI pulpwood
plantations or HPH selective logging concessions. Averaged across all log production that
occurred in Riau in 2001, land clearing activities typically generated employment for 134
workers per 1,000 ha. By contrast, HTI pulpwood plantation development generated
employment for approximately 43 workers per 1,000 ha, and HPH concessions supported
jobs for less than 2 workers per 1,000 ha.

It is critical to recognize, however, that employment generated by land clearing activities is


short-term in nature and inherently unsustainable. In contrast to the selective logging and
rotational management practices prescribed for HPH timber concessions, IPK regulations
allow permit-holders to remove all remaining forest cover from the site being logged. For
policymakers concerned with employment issues in Riau, it will be important to determine
how much longer forest conversion and land clearing activities in the province can
continue at the pace that has been set over the last few years. In addition, it will be

45
necessary to evaluate the extent to which workers involved in land clearing have access to
jobs or other opportunities for income generation on the land they have cleared, once the
forest cover is removed.

Another important point to emerge from this analysis is that the degree of labor inputs
involved in land clearing varies quite considerably depending on whether an area is being
cleared in a manual, semi-mechanized, or mechanized manner. As noted earlier, the
conversion of 1,000 ha typically requires 440 workers if it is done manually; 96 workers if
it is done with semi-mechanized operations; and 39 workers if done through mechanized
operations. Similarly, manual land clearing operations typically employ 3,390 workers to
harvest 1.0 million m3; whereas semi-mechanized operations employ 741 workers; and
mechanized operations employ 301 workers. This implies an 11-fold difference between
manual and mechanized operations in terms of employment generation.

Table 27: Direct Employment Per Area of Land Utilized by Forestry Subsector in Riau,
2001

Subsector Direct Total Area Employment


Employment (ha) Per 1,000 ha
HPH Logging Concessions 2,032 1,114,063 1.8
IPK Land Clearing 3,782 28,128 134.4
Undocumented Log Production 14,396 107,262 134.4
HTI Pulpwood Plantations 17,784 400,000 42.9
Total 37,944 1,649,453 --
Note: The total area figure for HPH logging concessions refers to the gross area covered by the 20
HPH licenses that were active in Riau during 2001. For IPK land clearing and undocumented log
production, total area has been estimated by dividing log production by 130 m3/ha. For HTI
pulpwood plantations, total area has been estimated, first, by adding the assumed net area planted
during 1996-2000 (200,000 ha) and the reported net area of plantation development during 2001
(55,000 ha on new areas and replanting sites combined); and, second, by dividing this sum by 0.65
to obtain the gross area covered by the plantation sites under operation (assuming net plantable area
is 65% of gross area). It should be noted that the gross area for HTI plantations reported here is
substantially lower than the 600,000 ha of gross plantation area (at all sites) that APP and APRIL
reported having access to in 2001.

Third, weak regulatory institutions and strong market demand have resulted in two-thirds
of Riau’s total log production being harvested from undocumented sources. Based on the
assumed volumes of log inputs utilized by Riau’s wood processing industries, this study
estimates that 13.9 million m3 of logs harvested from natural forests during 2001 are not
accounted for in the official statistics. Approximately two-thirds of this volume was in the
form of small-diameter logs that were harvested to meet RAPP and Indah Kiat’s
considerable demand for MTH.

With the information available, it is not at all clear what portion of this wood was
harvested legally and what portion came from illegal sources. On the one hand, it is
possible that much of these logs may have been harvested legally by holders of IPK
licenses or harvesting permits issued by local Bupati’s, and simply not recorded by the

46
Provincial Forestry Service. On the other hand, numerous reports have suggested that
illegal logging is widespread in Riau, and that IPK licenses and Bupati permits are often
misused to provide the appearance of legality for logs that are harvested outside authorized
areas. Distinguishing between legal and illegal log flows is often difficult in cases where
independent ‘chain-of-custody’systems either do not exist or are not yet fully operational.

From the perspective of employment, this situation implies that an estimated 14,400
workers – or nearly 40 percent of all those involved in log production in Riau – are
working in what may be characterized an informal sector. To be clear, this figure has been
derived from the assumption that 50 percent of undocumented production is conducted
through mechanized operations, 30 percent through semi-mechanized operations, and 20
percent through manual operations.22 This, in turn, implies that approximately 9,424
workers – or two-thirds of the 14,400 – were involved in manual logging operations, while
3,088 were involved in semi-mechanized logging, and 2,090 were involved in mechanized
harvesting. It is likely that those involved in mechanized or semi-mechanized harvesting
were employed by companies that are either closely affiliated with or working as
contractors to RAPP or Indah Kiat. Much of the manual logging is likely being done by
members of local communities harvesting forests in and around their villages.

Fourth, the HTI pulpwood plantation subsector has grown substantially over the past
decade and is likely to continue to expand over the medium term to meet the fiber needs of
Riau’s pulp mills. This study estimates that companies and outgrower schemes affiliated
with APP and APRIL planted a total of 55,000 ha (net) of Acacia plantations in 2001, and
that the overall gross area of pulpwood plantations then under active management was
400,000 ha (gross). Both APP and APRIL are currently trying to expand the net area of
their respective plantation programs so they will fully supply the 9.8 million m3 of wood
fiber that each of their Riau mills needs annually. APP has announced plans to raise its
annual planting to 73,000 ha (net) in 2005, and then to plant 61,000 ha (net) or more each
year thereafter (Sinar Mas/APP 2002). APRIL is seeking to raise its annual planting to
49,000 ha (net) by 2003, and to plant between 45,000 ha and 49,000 ha (net) in each of the
following years (RAPP 2001). To meet these expansion targets, the two producers will
effectively need to double the aggregate area planted in 2001 and to maintain annual
planting levels at 110,000 ha (net)

This study estimates that nearly 13,200 workers were involved in the establishment of the
55,000 ha (net) of pulpwood plantations reported to have been planted in 2001. In addition,
approximately 4,600 workers were then involved in managing approximately 200,000 ha
(net) that had been planted during 1996-2000. These figures reflect the fact that labor
inputs for pulpwood plantations are highly cyclical. The numbers of workers employed
peaks in Year 1, when land clearing, site preparation, and planting occur; and again in Year
7, when harvesting and replanting are carried out. During the intervening years,

22
The number of workers engaged in undocumented log production could be higher than 14,400 if the
portion of logs harvested manually were, in fact, greater than 20 percent. As noted earlier, if it is assumed
that each type of harvesting operation (i.e. manual, semi-mechanized, and mechanized) was used to produce
one-third of the 13.9 million m3 of logs harvested from undocumented sources, then approximately 20,236
workers would have been employed in this portion of the sector.

47
particularly Years 3-6, employment drops sharply as relatively few workers are needed to
manage the site. Management of the 55,000 ha (net) planted in 2001, for instance, is
expected to have required approximately 3,200 workers in 2002 (Year 2) and fewer than
750 workers during 2003-2006 (Years 3-6).

In terms of employment generation, this means that conversion of any particular area of
land to a HTI plantation will create a fairly significant number of jobs every seven years.
In the intervening years, relatively few jobs will be created and yet the land will not be
available for other uses. This may be an acceptable land-use option in areas where there is
little competition for land or on tracts of land that have few other productive uses.
However, in areas where there are multiple land-use options, significant competition
among stakeholders for access to this land, and/or high levels of unemployment, then the
implications of the highly cyclical labor demands of HTI plantations need to be rigorously
assessed.

In terms of livelihood security for rural communities in Riau, the tradeoffs between
pulpwood plantations and other land-use options take on added significance with APP and
APRIL now seeking to expand their plantation resource bases. Communities located in
areas where the companies are seeking to develop plantations are often faced with the
question of whether the benefits from employment and income generation will be greater if
Acacia trees are planted on a particular tract of land or if that land is used for oil palm
production, rubber production, or small-holder agriculture. In many cases, the answer to
that question depends on whether community members have access to other sources of
income beyond the 7-year labor cycle that would incur if the land were planted with
Acacia.

At the same time, it is not always the case that local communities have access to whatever
jobs are created by plantation development efforts in the areas where they live. Indeed, at
three plantation companies surveyed for this study, over 80 percent of the workers
originated from other provinces. In this study, it was not possible to determine whether or
not this reflects a broader trend in Riau. However, if it does, this would suggest that HTI
plantation development provides relatively minimal benefits for the local population.

Another important issue relates to the fact that until now, virtually all of the HTI pulpwood
plantations established in Riau have been developed on sites where natural forest has been
cleared before the Acacia is planted. The main reason for this is that APP and APRIL have
sought to use large volumes of MTH to satisfy the fiber supply needs of their mills.23 The
companies also frequently seek to gain added legitimacy for their operations by
mentioning the fact that their forestry operations are a major source of employment in
Riau. However, this study demonstrates that relatively few jobs are created by the use of
mechanized land clearing on forested areas to establish plantation sites. Indeed,

23
On this point, APP and APRIL generally argue that they are using the MTH simply as a ‘bridging supply’
of fiber until their plantations become fully operational. However, both companies have expanded their pulp
mills at a much faster pace than they have brought plantations online. Their reliance on MTH stems, to a
significant degree, from the fact that they have not planted sufficient areas of Acacia plantations prior to
these capacity expansions.

48
mechanized land clearing generates only 39 jobs for every 1,000 ha cleared (assuming a
standing timber volume of 130 m3/ha). This would suggest that all other factors being
equal, there would be relatively little foregone employment generation if future HTI
pulpwood plantations were located on lands without forest cover or on forested areas with
much smaller standing volumes of timber.

2.7.2 Direct Employment from Wood Processing

Table 28 summarizes the numbers of workers directly employed by Riau’s forestry sector
industries during 2001. This study estimates that over 26,500 workers were employed by
the province’s 13 plywood and wood working mills, accounting for nearly 55 percent of all
jobs in wood processing industries. Licensed sawmills and unlicensed sawmills generated
12,500 and 2,600 jobs, respectively, to account for over 30 percent of the total employment
in wood processing. Riau’s two large pulp and paper mills – RAPP and Indah Kiat –
together generated direct employment of 6,480 jobs in 2001, representing 14 percent of the
total.

Table 28: Direct Employment in Wood Processing Industries in Riau Province, 2001

Subsector Production Direct Percent of


Employment Total (%)
Plywood and Wood Working 1,052,316 m3 26,573 54.7
Licensed Sawnwood 1,187,364 m3 12,499 25.7
Unlicensed Sawnwood 867,240 m3 2,641 5.5
Pulp and Paper 3,150,000 Adt 6,840 14.1
Total -- 48,553 100.0

As with the estimates of employment in roundwood production, these figures are perhaps
best interpreted within the context of the sector’s major trends. The following sections
outline the current trajectories of Riau’s wood processing industries and briefly examine
their implications in terms of forestry sector employment.

First, plywood production is undergoing a process of gradual decline; nonetheless, it


remains the largest source of direct employment among Riau’s wood processing
subsectors. Since 1998, the number of plywood mills operating in the province has
dropped from 18 to 12, and several of these mills are currently running well below their
installed capacity. Industry sources anticipate that further mill closures and/or capacity
reductions are likely to occur in the next few years as large-diameter logs become
increasingly scarce – and particularly if international market conditions for tropical
plywood remain unstable. It is also possible that the Ministry of Forestry, which now
regulates plywood and wood working mills, may seek to decommission some of the
province’s wood panel production capacity as part of its broader effort to reduce log
demand to a more sustainable level.

49
Due to the large number of workers employed by plywood mills – in some cases, as many
as 3,100 at a single processing facility -- it should be emphasized that the closure of
individual mills can have a fairly significant impact in terms of job loss. Moreover, the
findings of this study suggest that plywood production generates far more employment per
unit of roundwood consumed than other wood processing industries. As shown in Table
29, Riau’s plywood and wood working mills employed, on average, 126 workers for every
10,000 m3 of roundwood they utilized. By contrast, licensed sawmills employed
approximately 53 workers for every 10,000 m3 of logs consumed, while the province’s
pulp and paper mills employed fewer than 5 workers for the same volume of roundwood
input.

Table 29: Direct Employment Per Unit of Roundwood Consumed by Wood Processing
Subsector in Riau, 2001

Subsector Direct Roundwood Employment


Employment Consumed (m3) Per 10,000 m3
Plywood and Wood Working 26,573 2,104,632 126.2
Licensed Sawnwood 12,499 2,374,728 52.6
Unlicensed Sawnwood 2,641 1,734,480 15.2
Pulp and Paper 6,840 15,435,000 4.4
Total 48,553 21,648,840 22.4

Second, licensed and unlicensed sawnwood production has grown in recent years, but the
industry draws much of its raw material supply from unsustainable land clearing
operations and undocumented logging. In 2001, Riau had at least 600 sawmills, and these
facilities are estimated to have produced over 2.0 million m3 of lumber. Licensed sawmills
range in capacity from 500 m3 to 40,000 m3 per year, and numbers of employees range
from less than 10 to 450 per mill, although the vast majority of mills employ fewer than 50
workers. Most of the province’s unlicensed sawmills are small-scale units located on the
perimeter of Riau’s four main natural forest complexes: Tesso Nilo, Bukit Tigapuluh,
Kerumutan, and Rimbang Baling. These facilities employed, on average, 11 people per
mill; however, the sawmills near Tesso Nilo are significantly larger than those near
Kerumutan and Rimbang Baling.

The growth of the sawnwood subsector in recent years appears to have been catalyzed, to a
significant degree, by the expansion of forest conversion to supply wood for Riau’s pulp
mills and by the breakdown of law and order in the province’s forestry sector. With the
clearing of natural forest for MTH and plantation development, it is often the case that up
to 30 percent of the logs harvested have a diameter at breast height (dbh) of 30 cm or more.
These are typically utilized by sawmills in the area, while the smaller-diameter wood is
sent to the pulp mills. The rise in the number of sawmills in recent years has also coincided
with the proliferation of informal logging following the collapse of the Suharto regime and
the decentralization of forest administration. With little effective regulation being
exercised by Riau’s provincial or district governments, teams of illegal loggers are

50
supplying sawmills with large volumes of logs harvested from former HPH concessions,
protected forests, or other areas that were previously inaccessible to them.

This dependence of Riau’s sawnwood industry on unsustainable and informal log supplies
suggests that the subsector’s current level of production – and employment generation – is
not sustainable over the long-term. Over the medium term, however, sawnwood production
will likely remain an important source of forestry sector employment for as long as forest
conversion and informal logging continue at the current pace.

The large number of licensed and unlicensed sawmills in Riau has made the industry
difficult to regulate. In contrast to Riau’s plywood or pulp mills, sawmills are dispersed
geographically across the province and are often small enough that they can be relocated
relatively easily in response to the shifting availability of timber supplies, or the shifting
attention of regulatory authorities. At the same time, sawmills employ relatively small
numbers of workers, so it is theoretically possible for government agencies to target
closure of individual mills that are found to be operating illegally or in particular regions
where overcapacity is a problem, without displacing large numbers of employees at those
facilities. In many cases, however, sawmills are located close to where the logs they
process are being harvested, and legal and illegal loggers who would potentially be
displaced – as well as local government authorities -- are likely to protest any closure of
mills.

It should be mentioned that the worker productivity levels estimated for unlicensed mills is
a significant anomaly in this study’s findings. As shown in Table 29, approximately 15
workers are reported to be employed at unlicensed sawmills per 10,000 m3 of roundwood
consumed, whereas over 52 workers are employed at licensed sawmills to process an
equivalent volume of logs. If correct, this would suggest that the unlicensed mills are
significantly more efficient and/or more capital intensive than their licensed counterparts –
both of which seem unlikely. It is possible that the WWF survey data on which this is
based inadvertently underestimate the numbers of workers employed by unlicensed
sawmills or overestimate those mills’ production levels. As noted earlier, such a
conclusion is supported by figures reported by Dinas Kehutanan in the District of Indragiri
Hulu. In this district alone, officials reported the existence of 140 illegal sawmills with a
combined processing capacity of 86,715 m3/year. These mills reportedly employ 2,077
workers, suggesting that approximately 120 workers are involved in processing 10,000 m3
of roundwood. Clearly, this is an area that would benefit from further study.

Third, Riau’s pulp and paper industry has undergone rapid expansion since the mid-1990s
and currently consumes over three-quarters of the province’s total roundwood production;
however, the industry is highly capital-intensive and Riau’s two large pulp and paper mill
complexes employ relatively few workers compared to other types of wood processing. It
is estimated that APP and APRIL have invested approximately US$ 8.0 billion, in
aggregate, to increase annual production capacity at Indah Kiat and RAPP, respectively, to
2.0 million tonnes of pulp and 700,000 tonnes of paper products. They have also invested
approximately US$ 450 million to bring supporting plantations online. Operating at their
full current capacities, the two mills combined are capable of consuming some 19.6 million

51
m3 of roundwood per year. In 2001, the two mills consumed approximately 15.4 million
m3 of roundwood to produce 3.1 million tonnes of pulp, with roughly three-quarters of this
reportedly being harvested from natural forests while the remaining one-quarter came from
the companies’ HTI pulpwood plantations.

One of the more remarkable figures to emerge from this study is the fact that only 6,840
workers were directly employed in processing such a large volume of logs. Indeed, this
suggests that the pulp and paper industry generates direct employment of fewer than 5 jobs
in wood processing for every 10,000 m3 of roundwood consumed, as compared to 126
jobs generated by the plywood industry and 52 jobs generated by the licensed sawnwood
industry for the same volumes of roundwood. In other words, for every cubic meter of
roundwood that is processed, a plywood mill will generate 25 times more employment
than a pulp mill; and a sawmill will generate 10 times more employment. Indah Kiat and
RAPP, however, operate on a scale that is several orders of magnitude greater than even
the largest plywood and sawnwood processing facilities, and therefore, the numbers of
workers employed at their mill sites is substantially larger in an aggregate sense.

It is important to recognize that both Indah Kiat and RAPP generate far more employment
in plantation development and roundwood production than in wood processing at their mill
sites. In 2001, for instance, it was estimated that HTI plantation development activities
associated with the two mills employed some 17,784 workers, while the harvesting of 11.5
million m3 of pulpwood logs through documented and undocumented land clearing
provided employment for approximately 11,950 more. Altogether, this suggests that the
pulp and paper industry, together with related land clearing and plantation operations,
provided jobs for some 36,574 workers in 2001.

Approximately two-thirds of these workers are directly employed by the pulp companies
or forestry companies affiliated with them. However, nearly three-quarters of the workers
hired by those forestry companies are not full-time permanent employees. Rather, they are
classified as either ‘daily labor’ or ‘target-based labor’, generally making between Rp
435,000 and Rp 1.1 million per month (or US$ 550-1,450 per year) and having little long-
term job security. Moreover, as noted above, the jobs associated with land clearing are
generally not sustainable over the long term; and the conversion of forest land to
plantations frequently involves the displacement of local communities and/or undermining
of livelihood options for households previously dependent on the forests or land being
allocated to plantations.

In mid-2002, the Ministry of Industry and Trade issued a series of announcements


indicating that it would make renewed efforts to promote the pulp and paper industry,
which it views as being a critical sector in supporting Indonesia’s macroeconomic
recovery. From the perspective of employment generation, it is important to assess whether
further investment in pulp and paper production is a cost-effective means of creating jobs
in the forestry sector and whether the jobs created are likely to be sustainable over the long
term. This type of assessment is particularly necessary to the extent that public funds are
being used to subsidize the industry’s expansion and/or forest resources are being managed
unsustainably in order to maximize the industry’s short-term profits.

52
In very rough terms, the cost per job created by Riau’s pulp and paper industry can be
estimated by dividing the approximately US$ 8.5 billion invested in the industry and its
supporting plantations by the 36,574 jobs estimated to have been directly created by the
pulp and paper industry and related plantation development and land clearing activities in
2001. This suggests that each job required an investment of approximately US$ 218,000.
Amortized over the 20-year life of the mills’ machinery, it can be estimated that each job
costs, on average, US$ 10,900 per year. With nearly three-quarters of the workers
employed by the pulp and paper companies and their forestry affiliates classified as ‘daily
workers’ or ‘target-based labor’, a significant portion of these employees make less than
US$ 1,000 per year in wages (or Rp 750,000 per month).24

It is difficult to determine the total value of the capital subsidies that the Indonesian
government has given to APP and APRIL over the last several years. However, it can be
estimated confidently that the two producers have received direct and indirect government
subsidies amounting to several hundred million dollars or more. These have been provided
through favorable terms for the companies’ debt restructuring agreements with state-owned
banks and IBRA25, lucrative tax incentives, and access to large volumes of low-cost wood
through the clearing of natural forests.

If it is assumed, for the sake of analysis, that the total value of government subsidies to the
two groups has amounted to US$ 500 million, it could be argued that the Indonesian
government has, in effect, spent these funds to support the creation of 36,754 jobs.
However, if it is estimated that the average annual wage for unskilled and semi-skilled
workers is approximately US$ 1,000 per year (i.e. Rp 750,000 per month), then the
government’s US$ 500 million could have supported 50,000 workers over 10 years had it
been invested in public job creation initiatives. If it turns out that the government’s subsidy
to APP and APRIL is US$ 1.0 billion, then the number of workers that could have been
employed would be twice as large – i.e.100,000 workers over 10 years.

These figures certainly raise questions about the benefits of public subsidies for further
investment in pulp and paper production, particularly given the degree of concentration
that currently exists within the industry. Generally, one would expect that government
subsidies to strategic industries would leverage private sector investment in order to
achieve objectives that have outstanding social or environmental benefits for society at
large. In the case of Riau’s pulp and paper sector, however, it would appear that the
government is subsidizing two large producers that create relatively few jobs for the
amount of funds invested -- certainly far fewer jobs than if the government simply invested
the amounts of the subsidies directly in job creation programs.

24
This figure assumes an exchange rate of Rp 9,000 per US$ 1.00.
25
As of 2002, IBRA holds some US$ 1.3 billion in debts associated with APP’s parent conglomerate, the
Sinar Mas Group. It is unknown how much of this debt the Government will ultimately recover; however,
IBRA has often collected 20 percent or less of the debts owed by other forestry debtors.

53
Morevoer at the time this study was conducted, Indah Kiat and RAPP together consumed
roughly 20 million m3 of roundwood per year, nearly three-quarters of which has been
harvested through clearing of natural forests. Forestry companies affiliated with APP and
APRIL have also secured some 585,000 ha (gross) of plantation area and are seeking to
secure additional plantation areas totaling 350,000 ha (gross). Plantation areas that have
been allocated to those companies in the form of HTI plantation concessions are not
available for other types of land-use for at least 42 years. While outgrower schemes may
provide some local communities with income-generating opportunities by growing
pulpwood for the mills, it is also the case that lands planted under Acacia are effectively
unavailable for other types of income generation or livelihood support for at least the 7-
year rotation period.

54
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Apkindo. 1996. Directory to Indonesian Plywood Industry 1996. Manggala Wanabakti,


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Asia Pulp & Paper (APP). 2002. Asia Pulp & Paper Company Ltd Announces Details of
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Barr, C. 2002. Fiber Resources, Finances, and Strategies of Indonesian Pulp and Paper
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Barr, C. 2001b. “Will HPH Reform Lead to Sustainable Forest Management?: Questioning
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